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exception, the donor private foundation must make a good-faith determination
that the foreign organization is “equivalent” to a public charity (the “equivalency
test”). See Treas. Reg. section 53.4945-5(a)(5)(i). The Treasury Regulations provide
that a donor organization will have satisfied this requirement if its conclusions are
based on an affidavit of the grantee organization or an opinion of counsel that the
grantee is an organization described in section 509(a)(1), (2) or (3) of the Code. The
opinion or affidavit must set forth sufficient facts concerning the grantee for the IRS
to determine that the grantee would be likely to qualify as an organization
described in section 509(a)(1), (2) or (3) of the Code

A private foundation must apply a two-part test in order to establish that the
foreign organization is equivalent to a public charity: (1) the “reasonable judgment
test,” which addresses whether the organization is equivalent to a Code section
501(c)(3) entity, and (2) a “good faith determination test” which evaluates whether
the entity is equivalent to a public charity.

To satisfy the reasonable judgment test, the private foundation must
determine that the foreign organization is equivalent to a 501(c)(3) entity, i.e., it is
organized and operated exclusively for charitable purposes, there is no benefit to
private individuals, and it does not carry on prohibited activities (lobbying or
political activities). If the foreign organization has received more than 15% of its
lifetime support from U.S. sources and has not filed for exemption in the United
States, it may not be considered a 501(c)(3) entity. See Code section 4948(b); Treas.
Reg. section 1.508-1(a)(vi).

To satisfy the good faith determination test, the private foundation must
conclude that the entity is equivalent to a public charity under section 509(a)(1), (2)
or (3) of the Code or is an operating private foundation. The private foundation

makes this determination by relying on either an opinion of counsel (either counsel
to the donor or the recipient) or on an affidavit of the recipient. The opinion or
affidavit must provide the same type of information that would be included on a
Form 1023 application or a Form 990 return. The array of necessary facts depends
upon the type of public charity to which the recipient organization is equivalent.
For example, if the foreign organization is equivalent to a Code section
170(b)(1)(A)(vi) organization (“publicly supported”), the recipient needs to
demonstrate that it meets the four-year support requirement.

Revenue Procedure 92-94 establishes a simplified procedure whereby the
U.S. grantee may rely on a current qualified affidavit in making the equivalency
determination for both the expenditure responsibility and the qualifying

WASHINGTON NONPROFIT HANDBOOK -124- 2018