Private Client Services

Concerns about Ukraine refugees and other humanitarian injustices are at the forefront of many private foundations. Most of these types of efforts need a quick and immediate response. However, private foundations wanting to provide relief need to be prepared in advance and make sure their gifts are considered qualifying distributions and do not result in a taxable expenditure to the foundation.

Taxable expenditures are grants or expenditures made by a private foundation that are prohibited by the IRS. An example of a taxable expenditure is a gift to an organization other than a public charity. However, there are several ways a private foundation can provide relief quickly as outlined below.

Donate to a U.S. Public Charity

Donating to a U.S. public charity that supports relief efforts is the simplest method, and the foundation would have no additional reporting obligations. Any contributions directly to a U.S. public charity will count toward the private foundation’s annual required minimum distributions. There are many organizations already established that can receive contributions and immediately benefit individuals in need, including:

  • YMCA World Services
  • World Central Kitchen
  • Red Cross

Donate to a Foreign Charity

Donating to a foreign charity is another option. Before making any gift to foreign charity, it is wise that the private foundation confirms the foreign charity is recognized by the IRS as a public charity. Many foreign charities receive determination letters from the IRS allowing private foundations to make gifts to the foreign charity as if it is a U.S. public charity. The gift is treated just like any other gift made to a public charity.

If the foreign charity does not have a determination letter issued by the IRS, grant making by the private foundation becomes more complex. However, if a private foundation makes a “good faith determination” that a foreign organization qualifies as a qualifying public charity, then the grant will generally be a qualifying distribution. This good faith determination is known as an equivalency determination, which is described in Revenue Procedure 2017-53. The equivalency determination must be made by a qualified tax practitioner—typically an attorney—and written advice can generally be relied on for two consecutive tax periods. 

“Friends Of” Organizations

“Friends of” organizations are domestic public charities that solicit money with the intent of granting it to a specific foreign charity.  

Under U.S. tax law, U.S. Friends organizations must be operated independently of the foreign organizations they support. The governing boards of such Friends organizations are required to oversee all areas of Friends activities and retain authority for grant making and financial decision making. The formal legal relationship is essentially the same as that of any U.S. charitable foundation and a foreign charitable grantee.

Friends of organizations must retain adequate control and discretion over the use of the contributions, as well as follow approved procedures before remitting the money abroad. 

International Donor-Advised Fund

A donor-advised fund is a flexible tool for private foundations seeking to support nonprofit initiatives across the globe. A donor-advised fund is treated as a public charity and any contributions are considered qualifying distributions. It is important to note that if you are contributing to a donor-advised fund, make sure the organization has adequate screening and vetting processes for foreign charities. 

Whether this humanitarian crisis is short lived or not, there is a need both inside and outside of Ukraine to support the refugees. A private foundation may want to make a contribution quickly to support the ongoing needs. However, before making that decision, we recommend you consult with your advisor to consider whether the decision is the right one for your private foundation. Submit the Contact Us form below if you have additional questions.

FORVIS Private Client services may include investment advisory services provided by FORVIS Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by FORVIS, LLP. The information in this presentation should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies, mentioned in this presentation may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax, or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.

Related FORsights

Let's Connect

Subscribe to our content or get in touch with us today

Subscribe Contact Us