Support for Ukraine – How Can Your Private Foundation Help?
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.