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to such grant. Treas. Reg. section 53.4945-5(a)(1). A foundation is considered to be
exercising expenditure responsibility if it:

…exerts all reasonable efforts and establishes adequate procedures:
(a) To see that the grant is spent solely for the purpose for which made,
(b) To obtain full and complete reports from the grantee on how the funds
are spent, and
(c) To make full and detailed reports with respect to such expenditures to the
Commissioner.

Treas. Reg. section 53.4945-5(b)(1).

The granting organization must first perform a pre-grant inquiry into the
nature of the grantee, confirming that the grantee will properly use the grant funds.
Treas. Reg. section 53.4945-5(b)(2). The grantor and grantee must then enter into a
written grant agreement outlining a variety of restrictions on the use of the grant,
including a requirement that the grantee submit annual reports to the grantor and
a prohibition on use of the grant funds or commercial, political or lobbying
activities. Finally, the private foundation itself must satisfy certain recordkeeping
requirements with respect to its expenditure responsibility grants and disclose
them to the IRS on Form 990-PF. See Treas. Reg. section 53.4945-5(d).

(ii) Qualifying Distributions.

A private foundation (other than a private operating foundation) is required
to make “qualifying distributions” essentially equal to 5% of its net investment
assets. The private foundation will incur an excise tax under section 4942 of the

Code, if it fails to make the required distribution.

A qualifying distribution is an amount paid to accomplish one or more of the
purposes described in section 170(c)(1) or (c)(2)(B) of the Code, other than a
contribution to (1) an organization controlled by the private foundation or a
disqualified person with respect to the private foundation; (2) a non-operating
private foundation; or (3) an organization described in section 4942(g)(4)(A)(i) or
(ii) of the Code, if paid by a private foundation that is not an operating foundation.
The term qualifying distribution also includes an amount paid to acquire an asset
used (or held for use) directly in carrying out one or more purposes described in
section 170(c) (1) or (2)(B).” See Treas. Reg. section 53.4942(a)-3(a)(2).

A U.S. private foundation’s grant to a foreign organization will generally only
constitute a qualifying distribution if the recipient has received a favorable

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