Page 127 - Washington Nonprofit Handbook 2018 Edition

PART 6. INTERNATIONAL ACTIVITIES AND GRANTMAKING

CHAPTER 37. Ability Of 501(C)(3) Organizations To Carry On Foreign

Activities—Non-U.S. Charitable Activities Qualify As 501(C)(3)
Activities

A U.S. organization exempt from federal income taxes under section 501(c)(3)
of the Internal Revenue Code of 1986, as amended (also referred to as the “section
501(c)(3);” organizations exempt from federal taxes under Code section 501(c)(3)
also referred to as a “501(c)(3) organization”) can conduct international activities
without jeopardizing its section 501(c)(3) status, provided that the foreign activities
would have been viewed as charitable within the meaning of section 501(c)(3) if
they had been carried on in the United States and the conduct of such activities
outside the United States does not preclude the organization from qualifying as an
exempt organization under that section. See Revenue Ruling 71-460, 1972-2 CB
231.

The holding of Revenue Ruling 71-460 is consistent with the position of the
IRS in Revenue Ruling 68-165, 1968-1 CB 253, which held that a domestic nonprofit
organization that provides technical and material assistance for self-help projects
intended to improve living conditions of the underprivileged and operates a
student exchange program qualifies in Latin America as a 501(c)(3) organization.
Similarly, in Private Letter Ruling 200408035 (02/20/2004), the IRS confirmed the
holding of Revenue Ruling 71-460, stating that a private foundation’s proposed
grant to the government of an impoverished foreign country to provide housing for
residents for the foreign country satisfied the requirement of section 501(c)(3).
Private Letter Ruling 200121078 (05/29/2001) also reaffirmed the holding of
Revenue Ruling 71-460 when it addressed a private foundation’s proposed grant to

a foreign orphanage.

CHAPTER 38. Indirect Contributions Of Gifts To Be Used Outside The United
States—Earmarking

a. Earmarking Issues

Because of the inability of U.S. donors to take an income tax deduction under
I.R.C. section 170 for direct contributions to non-U.S. organizations, and because of
the expenditure responsibility rules of I.R.C. section 4945(h) and the qualifying
distribution rules of I.R.C. section 4942 applicable to private foundations, donors
often make contributions to U.S. public charities with the intention that their

contributions be used outside the United States. This raises the “earmarking issue.”

WASHINGTON NONPROFIT HANDBOOK -116- 2018