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International Grantmaking
| posted 11/02/2007
This resource provides an overview of U.S. laws affecting international grantmaking by U.S. tax-exempt organizations.
Background
Religious organizations throughout the U.S. participate in international grantmaking activities. These grantmaking activities vary in type and purpose. Some international grants are made to fund traditional ministry activities, such as evangelism, church planting, and religious education, while others are made as part of relief efforts in impoverished and needy communities. Regardless of the type and purpose of these international grants, they are undoubtedly motivated by the outreach purposes of the religious organizations that operate them.
From a purely religious perspective, such ministry acts should probably be unhindered by government regulation. Nevertheless, for religious organizations that enjoy tax-exempt status for federal income tax purposes and want to maintain the deductibility of contributions that they receive, there are rules and regulations by which such organizations must abide. In addition, in today's environment, following the events of September 11, 2001, the international grantmaking activities of a Christian organization are subject to a variety of laws, regulations, and recommendations meant to curb and eliminate terrorist financing by U.S. charities.
The following detailed discussion highlights those laws that any tax-exempt organization must follow when conducting international grantmaking activities.
IRS Rules Regarding International Grants
Generally speaking, a taxpayer may deduct the amount of charitable contributions made to a tax-exempt organization described in Code §501(c)(3).[1] The rules and regulations governing the charitable contributions is quite broad, and a full exposition of those rules is outside the scope of this memorandum. However, deductibility of charitable contributions is generally governed by Code §170.
While Code §170 allows a U.S. taxpayer to deduct the value of charitable contributions made to a U.S. charity, it generally does not allow a deduction for contributions made to foreign organizations (even if the foreign organization were to use such contributions for charitable purposes).[2] These rules therefore create some hurdles for taxpayers who wish to make financial contributions internationally that will further their religious faith and at the same time maximize the tax benefit provided under Code §170. Nevertheless, Treasury Regulations promulgated under Code §170 indicate that a charitable contribution by an individual to or for the use of a U.S. charity may be deductible even though the U.S. charity may use some or all of its funds in foreign countries for charitable purposes.[3]
