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Final regulations: “Foreign equivalency” standards for private foundations modified

Private foundations

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9740) providing guidance to private foundations that make grants to foreign organizations. These final regulations modify the reliance standards for making “good faith determinations” that foreign grantees are the foreign equivalent of a public charity.


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A private foundation making a grant to a foreign organization that does not have an IRS determination letter can make a good faith determination that the organization is a “public charity.” Such a determination generally allows the private foundation to treat the grant as a “qualifying distribution” under section 4942 and generally relieves the private foundation from exercising “expenditure responsibility” under section 4945. 

Under the current regulations, a private foundation is permitted to base its good faith determination on either an affidavit of the grantee or on an opinion of counsel of either the grantor or grantee. 

In September 2012, Treasury and the IRS IRS released proposed regulations (REG–134974-12) that expanded the class of practitioners on whose written advice a private foundation may base a good faith determination to any “qualified tax practitioner.” In addition, the proposed regulations sought comments on a number of specific items: 

  • The timeframe during which a private foundation can rely upon a qualified tax practitioner’s written advice
  • Whether Rev. Proc. 92-94 (relating to qualified affidavits) is to be modified to take into account changes to the public support test
  • Whether additional guidelines regarding appropriate timeframes for gathering information with respect to affidavits are to be provided
  • Whether the ability of a private foundation to base a good faith determination on an affidavit of a foreign grantee is to be eliminated or restricted

Final regulations

Today’s final regulations [PDF 226 KB] seek to balance two important considerations: (1) removing barriers to international grantmaking by foundations; and (2) ensuring that foundations’ good faith determinations are informed by a sufficient understanding of the applicable law, are based on all relevant factual information, and are likely to be correct. 

The final regulations adopt the provision of the proposed regulations expanding the class of advisors providing written advice on which foundations may ordinarily rely to “qualified tax practitioners” (i.e., an attorney, certified public accountant, or enrolled agent as defined in Circular 230). As explained in the preamble, the final regulations also clarify that this expanded class generally does not include foreign counsel, unless the counsel satisfies the requirements of a qualified tax practitioner. The final regulations clarify that for a foundation seeking the benefit of the special rule, the written advice on which it bases its good faith determination must be received from a qualified tax practitioner rather than from another foundation.

In response to numerous comments, the final regulations eliminate reliance on grantee affidavits from the safe harbor. Foundations may continue to use grantee affidavits as a source of information in otherwise making a good faith determination. However, the final regulations no longer ordinarily consider a good faith determination to have been made solely because it is based on a grantee affidavit.

The final regulations adopt a timeframe for purposes of the special rule, requiring written advice of a qualified tax practitioner serving as the basis for a good faith determination to be “current.” If, as of the date of the foundation’s distribution, the relevant law on which the advice was based has not changed and the factual information on which the advice was based is from the grantee’s current or prior year, such advice is deemed to be current.

In addition, until further guidance is issued, sponsoring organizations of donor advised funds (DAFs) may use these regulations as guidance in making equivalency determinations.

The final regulations note that parallel changes have not been made to the regulations under section 1441 (relating to withholding) because they are outside the scope of this regulations project. However, such changes may be considered in future guidance.

The preamble to the final regulations also states that the IRS intends to publish an updated revenue procedure to reflect the changes implemented in these final regulations as well as the changes to the public support tests for section 170(b)(1)(A)(vi) and section 509(a)(2) organizations set forth in final regulations implementing the redesign of the Form 990.

Effective date

The final regulations apply generally to distributions made after September 25, 2015 (i.e., the date of publication in the Federal Register). However, a good faith determination may continue to be made in accordance with the prior regulations for any distribution to a foreign organization within 90 days after such date. Also, a foundation that has made a written commitment on or before September 25, 2015, may make distributions to the foreign organization, in fulfillment of that commitment and pursuant to a determination made in good faith in accordance with the prior regulations, for up to five years from September 25, 2015.


For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group:

D. Greg Goller |  +1 (703) 286-8391 |

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