Strategies for Tax-Efficient Global Philanthropy

The current income tax laws do not permit an income tax deduction for contributions to foreign charities. But there are several options for charitably motivated clients to support foreign causes in a tax-efficient manner. These options include the possibility of a tax treaty between the United States and the country in which the charity is formed allowing a charitable deduction. Also, the allowance of a charitable deduction by the estate of a decedent for donations made to foreign charities is mentioned. Charitable entities already in existence formed in the United States, yet doing work in foreign countries is another option for those clients who do not wish to be closely involved with the ultimate charitable recipient. But for those clients who wish to maintain close control over the use of their donation and choice of the ultimate charitable recipient, they can first form their own charitable entity in the United States. The donor would then make donations to the U.S. charity and have the U.S. charity make donations to the foreign charity. The donor must make sure the U.S. charity closely conforms to the charitable qualification requirements of the Internal Revenue Code for the donation to be deductible for income tax purposes. They must also ensure the manner in which donations are made to foreign charities cannot be dictated by any foreign organization. Illustrations of those U.S. entities that met these requirements and those that did not are detailed in the article. The article's practical applications include the forms and filing requirements for creating a U.S. charity