The issue of a charitable organization with operations in a foreign country is quite complex, involving not only monitoring the Internal Revenue Service, but also by the Department of Homeland Security. Is fraught with pitfalls that can only be avoided if you understand the rules. The Foundation Group has worked with thousands of 501 (c) (3) clients with activities abroad … and each situation is different. I can only scratch the surface of this article, but my goal is to help understand some of the challenges associated with activities in foreign countries.
This issue can best be divided into two main stages: 1) direct activities and 2) charitable giving. Let’s look at each one in order:
The direct. Direct activities is defined as a national (U.S.) tax exempt organization operating some or all of its programs physically in a foreign country. There are many examples of this: schools, clinics, economic development programs, orphanages, etc.. This can involve citizens living in the U.S. and operation of the program in the foreign country, a program with all staff of foreign citizens, or a combination of both. The biggest challenge in maintaining a program compatible with IRS-foreign country is the same as for any 501 (c organization), if, the program must meet a charitable purpose. What is different is the ever-changing landscape of international relations.
A key issue here is the OFAC – the Office of Foreign Assets Control. As explained in the website of the U.S. Treasury
“The Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted countries foreign regimes, terrorists, international narcotics traffickers, who are engaged in activities related to the proliferation of weapons of mass destruction and other threats to national security, foreign policy or economy of the United States. OFAC acts of presidential powers national emergency and the authority granted by specific legislation, to impose controls on transactions and freeze assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
In short, OFAC determines where you can and can not go and with whom they can and can not treat. Although technically a program of the Ministry of Finance, National Security is directly involved. It is imperative for any U.S. charity that intends to implement programs in a foreign country knows what he is saying OFAC. It’s hard enough to learn to acclimate to a unique culture. Certainly do not need the headache of violating national security.
Charitable donations. This activity usually involves a U.S. charity financial support to the efforts of a foreign charity. This topic may seem straighter forward on the surface, but in reality is treated with greater scrutiny by the IRS that are the direct activities. For example, a U.S. charity gives money to a program of poverty alleviation based in New Delhi, India. In principle, this is fine as long as the foreign country or agency is not in any OFAC list (see above). The problem is the lack of direct responsibility for trust fund expenditures of U.S. by the organization. In our example, the U.S. charity must ensure that they supported the program qualifies as one that would be recognized as a 501 (c) (3) if in the U.S.. In addition, the U.S. charity should require a detailed accounting of the expenditure of funds in order to monitor compliance with 501 (c) (3) the costs associated. Should the internal organization to learn that the money is not spent in a way that is acceptable by the IRS, donations to the foreign organization must cease immediately.
In addition, the IRS will not allow a national charity to be merely”conduit” money to a foreign organization. U.S. Law not allow such direct affiliates. In other words, a U.S. charity can not exist for the sole purpose of providing financial support to a specific foreign charity. A U.S. charity should be organized for certain charitable purposes is solely responsible for one of which may be supporting the work of foreign charities. The best thing is that such support is not tied to any specific foreign charity on an exclusive basis. For a new organization that is either the name of foreign charities to be supported initially, but would be wrong to support charitable organizations called for the sole purpose. The IRS probably deny the application for 501 (c) (3) statuses. Income resolutions 63-252 and 66-79 against some of these issues directly.
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