Page 134 - Washington Nonprofit Handbook 2018 Edition

determination from the IRS as to its public charity or private foundation status, or
the grantor makes a good-faith determination that the foreign organization is the
equivalent of a public charity or a private operating foundation (as discussed
below). Treas. Reg. section 53.4945-5(a)(5).

If the donor private foundation has determined that the foreign recipient is
equivalent to a 501(c)(3) organization but cannot determine that it is equivalent to a
public charity or private operating foundation, the grant will only constitute a
qualifying distribution if it satisfies the “out of corpus” requirements of section
4942(g)(3) of the Code, i.e., the recipient organization must redistribute the grant by
the close of the first taxable year after the year of receipt and must provide
evidence to the grantor private foundation that a qualifying distribution has been
made that is treated under section 4942(h) of the Code as “out of corpus.”

(iii) Exceptions.

In certain circumstances an organization will be treated as a public charity for
purposes of the expenditure responsibility rules and the qualified distribution rules
even though the recipient organization does not possess a determination letter
from the IRS finding that it is a public charity. These circumstances are discussed
below.

First, a grant to a foreign government or any agency or instrumentality of a
foreign government, or an international organization designated as such by
Executive Order under 22 U.S.C. section 288 (even if not described in section
501(c)(3) of the Code) that agrees to use the grant exclusively for charitable
purposes will constitute a qualifying distribution and will not require expenditure
responsibility. See Treas. Reg. section 53.4945-5(a)(4)(iii). A college or university
that is an agency or instrumentality of a foreign government or of any political
subdivision of a foreign government and that agrees to use the grant exclusively for
charitable purposes also comes within this exception. See Treas. Reg. section
53.4945-5(a). In these situations, it is important that the contributing private
foundation make a determination that the recipient organization is a government
agency. Private foundations may want to obtain an opinion of counsel or an
affidavit of the grantee to confirm that the recipient is a government agency under
local law.

Second, a grant to a foreign organization that is “equivalent” to a U.S. public
charity will constitute a qualifying distribution and will not require expenditure
responsibility. See Treas. Reg. section 53.4942(a)-3(a)(6)(i). To come within this

WASHINGTON NONPROFIT HANDBOOK -123- 2018