Page 137 - Washington Nonprofit Handbook 2018 Edition

a. Canada

The 1980 United States-Canada Income Tax Convention (the “Convention”)

provides for reciprocal recognition of exemption for religious, scientific, literary,
educational or charitable organizations under certain circumstances. Article XXI of
the Convention governs inter alia, exemption of a Canadian or U.S. charity from
income tax in the other country and it allows a limited charitable contribution
deduction for gifts by U.S. citizens or residents to Canadian charities and by
Canadian residents to U.S. charities.

Notice 99-47, dated September 7, 1999, states that recognized religious,
scientific, literary, educational or charitable entities that are organized under the
laws of either the United States or Canada will automatically receive recognition of
exemption without application in the other country. Thus, U.S. organizations must
be recognized as exempt under section 501(c)(3) to come within the requirements
of the treaty, and Revenue Canada must recognize Canadian organizations as

Canadian registered charities in order to come within the requirements of the
treaty. Every Canadian registered charity is automatically treated as a 501(c)(3)
organization, regardless of whether the entity has filed a Form 1023 with the IRS.
The Canadian entity’s 501(c)(3) status will continue until Canada withdraws its
registration or the IRS determines that the organization fails to satisfy the
requirements for exempt status.

It is important to note that under the Convention there is a presumption that
all registered Canadian charities are private foundations for U.S. tax purposes
unless they demonstrate otherwise. This presumption can create qualifying
distribution issues for U.S. private foundations that make grants to Canadian
registered charities if the private foundation cannot determine that the recipient is

equivalent to a public charity.

b. Mexico

The 1992 United States-Mexico Income Tax Treaty (the “Treaty”) also provides
for reciprocal recognition of exemption and reciprocal deduction of charitable
contributions, subject to limitations to the income arising in the other country.
Article 22(1) of the Treaty provides that if an organization is tax-exempt in one
country and the income received by such organization would be exempt in the
other country if the organization were organized under the laws of the latter
country, then the organization shall be exempt from tax in both countries.

WASHINGTON NONPROFIT HANDBOOK -126- 2018