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Sept. 23 — Final rules on grants by private foundations to foreign entities added a number of helpful clarifications, including the years in which an opinion on an equivalency determination may be relied upon.
“Previously there was some question about how long you could rely on an opinion from a lawyer, certified public accountant or enrolled agent, and the final rules clarify that the person writing the opinion is to use five years of public support information, which is typically the five most recently completed tax years, and that the opinion is then valid for two years,” Robert Wexler, principal with Adler & Colvin, told Bloomberg BNA Sept. 23.
Typically professionals will look at the five most recently completed tax years of the foreign grantee, he said. That means if they are writing an opinion in 2015, they will look at the grantee's gross revenues from 2014 back to 2010 to determine whether the grantee is publicly supported, in order to write the opinion.
The rules (T.D. 9740; RIN1545-BL23) are aimed at helping foundations determine if the foreign charities to which they are making grants are the equivalent of U.S. public charities.
Current regulations allow private foundations to treat such grants as charitable donations if they made a “good faith” equivalency determination, either using an affidavit from the donee organization or a legal opinion showing that the recipient group was like a U.S. public charity.
The final rules also help to clarify how a foundation can rely on another organization's legal or professional adviser for an opinion of equivalency and gave implicit validity to repositories, Wexler said. In addition, they said that private foundations can't rely on opinions from foreign lawyers.
CoF Wins Big on Repositories
For the Council on Foundations, the rules were all about the sanctioning of repositories for equivalency determinations.
“These final regulations will allow foundations to confidently rely on equivalency determinations provided through shared repositories like NGOsource,” Vikki Spruill, president and chief executive officer of the Council on Foundations, told Bloomberg BNA in a Sept. 23 statement.
The Council on Foundations had advocated for this outcome for many years, in an effort to reduce barriers to global grant-making for foundations, she said.
In 2013, the Council on Foundations and TechSoup Global launched the first equivalency determination repository, NGOsource, after interpreting the proposed rules as paving the way for the repositories, Spruill said.
A repository stores past equivalency determinations conducted on foreign organizations for future use. It provides advice to the private foundation that the grantee qualifies and lists the foreign charities that are eligible to receive grants without the need for a private foundation to do “expenditure responsibility,” which involves due diligence, paperwork, monitoring and reporting.
A U.S. private foundation can make grants to a foreign organization for charitable purposes, but if the foreign charity qualifies as the foreign equivalent of a U.S. public charity then the U.S. private foundation can avoid expenditure responsibility.
The one drawback in the rules is that foundations can't solely rely on an affidavit of equivalency that a grantee has prepared, Wexler said.
One of the most common practices was for a foundation to get a particular type of affidavit from a grantee that they signed under oath. The affidavit would describe how the organization had complied with the U.S. tax code Section 501(c)(3) rules and also give a public support schedule, if the organization was publicly supported.
“Lots of people don't have in-house counsel and not everyone wants to pay a lawyer to write an opinion,” Wexler said.
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