Oct 1, 2010 12:00 PM

Six ways U.S. citizens and residents can donate to foreign charities

By Laura H. Peebles

Recent world events have brought new attention to the need for effective cross-border philanthropy. Whether concerned with immediate response to disasters or long-term development needs, U.S.-based donors are moved to help. Their advisors are often called upon to respond to the question, “How do I make a donation for Target country?¹ Oh, and I want it to be deductible if possible.” Internal Revenue Code Section 170(c) provides that if a charitable contribution is to be deductible, it must be made to an organization “created or organized in the United States or in any possession thereof, or under the law of the United States, any state, the District of Columbia, or any possession of the United States.” The basic rules regarding the deductibility of charitable gifts by individuals for use abroad are fairly straightforward: Direct gifts to foreign charities aren't deductible for income tax purposes (under IRC Section 170), but generally are deductible for gift and estate tax purposes (under IRC Section 2522 and IRC Section 2055, respectively). U.S. charities may make grants to foreign organizations if the U.S. charities' boards take the required steps to ensure that the funds will be used for charitable purposes.²

The following are six ways to donate to foreign charities, along with the advantages and disadvantages of each. In addition, the United States has income tax treaties with each of Canada, Israel and Mexico that contain more generous provisions regarding deductions for donations by U.S. persons to foreign charities in a foreign jurisdiction. While a detailed discussion of the specifics of the respective treaties is beyond the scope of this article, these treaties generally allow U.S. donors to deduct donations to charities in the treaty partner against their foreign-source income from that jurisdiction.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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