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TOPC Potentia

Charitable Contributions Involving Foreign Charities

October 10, 2024



With limited exceptions, individuals can generally only claim a charitable deduction for a contribution made to or for the use of an organization formed in the United States or one of its possessions. In other words, a contribution made to a charitable organization created or organized under the laws of a foreign country is not deductible except as provided by a tax treaty between that country and the United States. Current tax treaties allow deductions for contributions to certain qualifying foreign charities in Canada, Mexico, and Israel.


Contribute to U.S.-Based Charities with Foreign Operations


One effective way to ensure your donation is deductible is to contribute to U.S.-based charitable organizations that operate internationally. There is no requirement that a U.S. charitable organization use a contribution within the United States, and therefore it may use the contribution in a foreign country without affecting the deductibility of the contribution. However, a contribution by a corporation must be used within the United States or its possessions in order to be deductible.


 Itis important to note that your contribution cannot be "earmarked" for the use of the foreign charity, or it will not be deductible. The IRS views  such cases as indirect donations where the domestic charity is only nominally the recipient and the ultimate recipient is the foreign organization.


Contribute to a U.S. Charity That Grants to Foreign Charities


A contribution to a domestic charity that makes grants from its general funds to foreign charitable groups is deductible if the grants are made for purposes that the domestic organization has reviewed and approved and that further its own charitable purposes. Similarly, a contribution made to a domestic organization that has solicited the contribution for a specific project of a foreign organization is deductible when the domestic organization has approved the project as furthering its own purposes and controls the use of the contribution.


Contributions to U.S. Charities with Foreign Subsidiaries


Alternatively, contributions made to a domestic charity are deductible even though the funds are transmitted to its foreign subsidiary if the foreign organization is merely an administrative arm of the domestic organization that controls the subsidiary's operations 


However, when you make a contribution to those organizations, you must bear in mind that they deduct a certain percentage to cover their operating costs. Therefore, as you can benefit from a tax deduction, you may consider contributing additional percentages. Nonetheless, careful investigation should first be undertaken to make sure that you receive a legitimate deduction, what cost ratio the organization has, and that the contribution aligns with IRS regulations.

The IRS website also explains the charitable contribution deductions, so if you are interested, please refer to the link below as well.

 

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