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distribution requirement. Typically, a current qualified affidavit provides
information for the entity’s latest complete accounting year and other current data.
If the recipient’s public charity status depends on demonstrating adequate public
support, the grant must provide a statement containing sufficient financial data to
establish that it continues to meet the applicable Code provision. See Rev. Proc. 92-
94 section 4.04, 1992-2 CB 507. A private foundation cannot rely on an affidavit if it
possesses information that suggests the affidavit may not be reliable.
Furthermore, the grantor cannot rely on an affidavit if the public charity status is
based on public support and the donor’s grant will cause the organization to fail the
support test.

b. Grantor’s Duty to Inquire as to section 501(c)(3) Status of Foreign
Organization Lacking Determination Letter

A private foundation that wishes to make a grant to a foreign organization
can choose to make an equivalency determination or exercise expenditure

responsibility over the foreign grantee. Based on a letter from the IRS to the
Council on Foundations dated June 18, 2001, it is clear that a private foundation
does not need to establish that a foreign charitable organization is equivalent to
either a public charity or a private foundation; rather, the foundation may simply
treat the foreign organization as a noncharitable entity to which it makes grants for
charitable uses and exercise expenditure responsibility with respect to the grant. It
must also require the recipient to hold the grant funds in a segregated account
dedicated to the exempt purpose of the grant. If the private foundation takes these
steps, the grant will constitute a qualifying distribution under section 4942 of the
Code and will not be a taxable expenditure under Treasury Regulation section
53.4945-6(c). This approach contrasts with a situation in which the donor private
foundation finds that the foreign charitable organization is equivalent to a 501(c)((3)
organization but that it is NOT equivalent to a public charity. Here, the grantor
would still have to exercise expenditure responsibility and the grant would avoid
taxable expenditure status under Code section 4945. However, the grant will not
constitute a qualifying distribution under Code section 4942 unless the recipient
satisfied the “out of corpus” rules discussed above.

CHAPTER 41. Special Treatment Accorded Canadian And Mexican
Organizations

There may be exceptions to the general rules regarding recognition of
exemption of foreign charities if an income tax treaty exists between the United
States and another country, as set forth below.

WASHINGTON NONPROFIT HANDBOOK -125- 2018