What Is Equivalency Determination for International Grants?

An equivalency determination for international grants is written advice from a qualified tax practitioner concluding that a foreign grantee operates like a U.S. 501(c)(3) public charity, which lets a private foundation fund that grantee without triggering the 20% excise tax on taxable expenditures and without taking on expenditure responsibility. The foundation collects the grantee’s governing documents, a signed affidavit from a principal officer, and five years of financial support data; a U.S. attorney, CPA, or enrolled agent reviews everything against the tests in Revenue Procedure 2017-53 and issues a letter the foundation relies on.¹ With a valid determination in hand, the grant also counts toward the foundation’s annual payout requirement.

Why the Determination Matters

Domestic public charities come with an IRS determination letter. Foreign organizations do not. So when a U.S. private foundation writes a check abroad, it has to prove one of two things: that the recipient is the equivalent of a domestic public charity, or that the foundation is exercising expenditure responsibility over the funds. Without one of those paths, the grant is a “taxable expenditure” under IRC Section 4945 and the foundation owes an initial 20% excise tax on the grant amount.²

The grant also fails to count as a qualifying distribution toward the roughly 5% of investment assets a private foundation must pay out every year, which can trigger a separate 30% tax on undistributed income.³ Two overlapping penalties on one mishandled grant is why most foundations doing international work treat equivalency determinations as standard procedure.

What the Foreign Grantee Has to Look Like

Revenue Procedure 2017-53 governs the analysis, replacing the earlier Rev. Proc. 92-94.⁴ The written advice has to confirm several things about the grantee’s structure and operations.

The grantee’s governing documents must limit its activities to charitable purposes recognized under U.S. law: religious, educational, scientific, literary, and the other categories used for domestic 501(c)(3) status, including prevention of cruelty to children or animals.¹ The grantee cannot have shareholders or members with an ownership interest in its income or assets. Neither its documents nor its actual practice can allow distributions that benefit non-charitable individuals or organizations, aside from reasonable compensation for services or fair market value purchases. That is the international parallel to the private inurement rule for domestic charities.⁴

The grantee cannot engage in more than an insubstantial amount of lobbying and cannot participate in political campaigns for or against candidates for public office. Its governing instruments must not expressly permit either.⁴

On dissolution, either the grantee’s governing documents or applicable local law must require that all assets pass to another charitable organization or to a government entity for public purposes. If the rule comes from local law rather than the charter, an English translation of the statute has to be attached to the written advice.⁴

The Public Support Test

Structural compliance is only half the analysis. To be treated as a public charity rather than a private foundation, the grantee also has to pass one of two financial tests measured over a five-year period.⁵

Under IRC Section 170(b)(1)(A)(vi), the grantee generally needs at least one-third of its total support from the general public, government grants, or a combination. A 10% threshold can work under a facts-and-circumstances analysis. Under IRC Section 509(a)(2), more than one-third of support must come from public contributions or gross receipts tied to the exempt purpose, and no more than one-third from investment income and unrelated business income.⁵

For grantees older than five years, the written advice has to attach a support schedule broken down by source across the test period, similar in form to what a domestic charity files on Form 990. For newer organizations, the practitioner can instead conclude that the grantee can reasonably be expected to meet the applicable test over its first five years, considering the relevant regulatory factors.⁴ This is where otherwise eligible foreign charities often stumble. Financial records may not exist in the form a U.S. practitioner needs, or the funding base may be too concentrated to satisfy either threshold.

Documents to Collect from the Grantee

The file starts with the grantee’s founding documents: articles of incorporation, charter, bylaws, or the local-law equivalent. These are the raw material for the organizational tests. The organizing document itself has to be attached to the written advice.

All materials, and the written advice, must be in English or translated into English. Rev. Proc. 2017-53 references the certified translation standards from the annual revenue procedure on letter rulings but explicitly says compliance with that standard “is not required.”⁴ Using a certified translator produces what the IRS considers an acceptable translation, but the rule is looser than many practitioners assume.

Financial data has to be sufficient to run the public support calculations, which for older grantees means a full support schedule for the five-year test window. A narrative of past and planned activities is also needed to show the grantee actually operates for its stated purpose, not just that its papers say the right things.

The centerpiece is a written statement or affidavit, attested to by a principal officer, addressing the grantee’s legal structure, financial support, and compliance with each requirement. If the grantee has supplied an affidavit for an earlier determination, Rev. Proc. 2017-53 allows an updated affidavit describing only material changes, paired with the original.⁴ That shortcut matters for foundations making repeat grants to the same organization.

Who Issues the Written Advice

The practitioner reviewing everything must be a qualified tax practitioner: a U.S. attorney, CPA, or enrolled agent.¹ The advice has to walk through each organizational and financial test, confirm the grantee has not been designated a terrorist organization by the U.S. government, and conclude that the grantee is equivalent to a domestic public charity. That letter is what the foundation relies on.

A repository service is the other route. Providers like NGOsource maintain a shared database of equivalency determinations, so if another foundation has already funded the same grantee, much of the underlying work is already done. The repository issues a certificate in the requesting foundation’s name. Certificates typically cannot be shared between organizations; each foundation must pay for its own, though the process moves faster and cheaper when the file already exists. Most repository certificates are valid for up to two years from the date of the most recent financial information used in the review.

The Good Faith Determination

After the advice arrives, a foundation manager has to make a formal “good faith determination,” a sign-off that the foundation exercised reasonable care in verifying the grantee’s status. The signed determination, the written advice, the affidavit, and all supporting records go into the foundation’s permanent files and must be produced on request during an IRS audit.⁴

How Long the Determination Stays Valid

Written advice under Rev. Proc. 2017-53 is current if the relevant law hasn’t changed and the factual information underlying the advice comes from the grantee’s current or prior tax year. In practice, a foundation can rely on the advice for up to two years after it’s provided, depending on when in the grantee’s tax year the advice was issued and how recent the underlying data was.⁴

For advice built on the five-year public support test, the determination remains current during the two taxable years of the grantee immediately after the end of the test period.⁴ Advice completed in early 2026 using financial data through 2025 for a calendar-year grantee generally stays current through December 2027.

A material change in the grantee’s operations, governance, or funding sources makes the existing determination stale. Foundations making recurring grants need to track these windows and build renewal timelines into the grantmaking calendar. An outdated determination provides no protection if the IRS later reclassifies the grant.

When to Use Expenditure Responsibility Instead

Some foreign grantees can’t pass the equivalency tests. They may be too new, lack the financial records, or have a governance structure that doesn’t map onto U.S. charity law. In those cases the foundation can still make the grant by exercising expenditure responsibility under IRC Section 4945(h).

That path requires three ongoing obligations: making sure the grant is spent solely for its stated purpose, obtaining full reports from the grantee on how the funds are used, and filing detailed reports with the IRS on each grant separately.² Before the grant, the foundation must run a pre-grant inquiry into the grantee’s identity, history, and management. The grant itself has to be governed by a written agreement committing the grantee to repay any unused portion, submit annual spending reports, keep accessible books and records, and stay away from lobbying, political activity, and non-charitable use.⁶ Foundations with large international portfolios usually treat equivalency as the default and reserve expenditure responsibility for grants where equivalency isn’t achievable.

What Getting It Wrong Costs

If the IRS treats an international grant as a taxable expenditure, the foundation owes an initial excise tax of 20% of the grant amount. If the problem isn’t corrected within the taxable period, an additional 100% tax on the grant applies.²

Foundation managers face personal liability too. A manager who knowingly approved the grant owes an initial tax of 5% of the grant, capped at $10,000 per taxable expenditure. Refusing to help correct the problem adds another 50% tax, capped at $20,000 per expenditure.² The “knowing” standard includes a reasonable-cause exception, and a manager who relied in good faith on qualified written advice has a strong defense. A manager who rubber-stamped a determination without actually reviewing the documentation does not.

The disqualified grant also fails as a qualifying distribution, which can trigger the separate 30% tax on undistributed income, with an additional 100% tax if the deficiency isn’t fixed.³ The stacked exposure on a single mishandled grant can dwarf the grant itself.

Sanctions Screening Is a Separate Obligation

An equivalency determination addresses whether the grantee looks like a public charity. It does not fully address whether the grantee or its principals appear on U.S. sanctions lists. That’s a separate compliance requirement. Under the sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control, foundations cannot transact with any person or entity on the Specially Designated Nationals list, and OFAC has stated that charitable donations should be treated like any other financial transaction, with recipient names cross-checked before proceeding.⁷

No specific screening software is required. What is required is not violating the law by transacting with a sanctioned party.⁷ Rev. Proc. 2017-53 does require the written advice itself to verify that the grantee has not been designated a terrorist organization by the U.S. government. Most foundations screen against the SDN list in addition, and many check UN Security Council and EU sanctions lists as well. Treasury’s voluntary anti-terrorism financing guidelines for charities do not create a legal safe harbor; they demonstrate reasonable precaution.

1
Internal Revenue Service. Grants to Foreign Organizations by Private Foundations
2
Office of the Law Revision Counsel. 26 U.S. Code 4945 – Taxes on Taxable Expenditures
3
Office of the Law Revision Counsel. 26 U.S. Code 4942 – Taxes on Failure To Distribute Income
4
Internal Revenue Service. Revenue Procedure 2017-53
5
Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Form 990, Schedules A and B: Public Charity Support Test
6
eCFR. 26 CFR 53.4945-5 – Grants to Organizations
7
Office of Foreign Assets Control. Frequently Asked Questions – Additional Questions from Financial Institutions