Utilizing intermediaries to simplify international giving

Few income tax treaties allow U.S. individuals to make deductible donations to foreign charities.

U.S. charitable organizations engaging in international philanthropy are subject to a number of restrictions on making grants to foreign organizations, some of these restrictions aimed at combating terrorism and increased enforcement of sanctions. Other challenges arise from the fact that the rules governing recognition of charities and the circumstances under which donors to charitable organizations may claim tax deductions or other benefits for their contributions is governed almost exclusively by the law of each separate jurisdiction.

A private foundation is subject to punitive excise taxes on grants to foreign organizations unless it either (i) obtains an equivalency determination that the recipient is the equivalent of a U.S. charity or (ii) exercises expenditure responsibility with respect to the grant. Obtaining an equivalency determination or exercising expenditure responsibility can be both costly and time consuming.

Hence, many U.S. private foundations, as well as individuals, choose to make grants to intermediaries that qualify as public charities rather than to foreign organizations directly.  A public charity is qualified as such because it raises its money from the general public and in turn donates funds and support to other organizations.

A holistic approach in grantmaking

Community foundations in South Africa often use a holistic approach in their grantmaking, addressing multiple, inter-connected issues simultaneously, such as education, employment and health care.

Community foundation leaders in South Africa intentionally focus on creating positive local change from the bottom up, initiated by citizens, instead of the top down, initiated by elected officials, say those in the field.

“If we believe in the community foundation movement, and I do, we need to get down to the ground level and talk with the people living there and hear how they are affected by our community’s problems,” said Beulah Fredericks, executive director of the Community Development Foundation Western Cape based in Cape Town, South Africa. “We need to hear their voices and what their aspirations are. We should be asking: ‘What do you want to change? Where do you want your life to go?'”

Elsewhere in Africa, community foundations that are in varying stages of development are being created in response to local needs. These newer foundations are able to bring a holistic approach to their grantmaking, which means addressing multiple, inter-connected issues simultaneously, such as education, employment and health care.

“Before, people in a community would be told: ‘We’ve got money for water; where do you want your pump?'” one participant says. “Instead of assuming they all need pumps, community foundations are instead asking: ‘What do you see as your most urgent need? What assets do you have? How can we help you meet this need?'”

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Would your organization have given Gandhi a grant?

Here’s a thought-provoking question: Would your organization have given Gandhi a grant? How about Martin Luther King?

Speaking on the state of philanthropy, Dr. Bob Ross, the CEO of The California Endowment, said: “I shudder to think what would have happened if Martin Luther King, or Gandhi, or Cesar Chavez had submitted a grant application to us.”

He made this observation while discussing the ways his organization tries to push the boundaries on risk-taking while also being conscious of its mission, its appetite for risk, and the political and cultural climate in which it operates.

Generally, he said, foundations are very risk averse.

And of course, what impacted the audience was the thought that we could possibly pass on supporting someone who would go on to change the world in a really big way. Or that we already had.