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Rev. Proc. 2017-53: Equivalency determinations for foreign grantmaking

Equivalency determinations for foreign grantmaking

The IRS today released an advance version of Rev. Proc. 2017-53 providing guidance that qualified tax practitioners may use for preparing written advice, upon which private foundations and sponsoring organizations of donor advised funds ordinarily may rely in making a good faith determination that a foreign grantee is the equivalent to a U.S. public charity.


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Read Rev. Proc. 2017-53 [PDF 99 KB] 

KPMG observation

Rev. Proc. 2017-53 is a long-awaited update to Rev. Proc. 92-94 and reflects the changes to the equivalency determination process (as set forth in regulations published in 2015), and the public support tests (as set forth in regulations published in 2011). In addition, it favorably resolves long-standing issues relating to nondiscrimination policies of foreign schools and support from foreign governments. 


A private foundation generally must exercise “expenditure responsibility” under section 4945 over a grant that it makes to an organization that does not have an IRS determination letter recognizing the organization as a section 501(c)(3) public charity. However, an exception applies for a grant made to a foreign organization about which the private foundation has made a good faith determination that the organization is a “public charity.” This process—also referred to as an “equivalency determination”—generally allows the private foundation to treat the grant as a “qualifying distribution” under section 4942 and generally relieves the private foundation from exercising expenditure responsibility. 

In making an equivalency determination, many foundations often relied on Rev. Proc. 92-94, which set forth simplified procedures for making “reasonable judgments” and “good faith determinations.” Specifically, the revenue procedure set forth guidelines for relying on an affidavit from the foreign grantee organization that demonstrated that it was the foreign equivalent of a U.S public charity.

In 2011, the IRS and Treasury Department issued final regulations that, among other things, modified the public support tests for organizations described in sections 509(a)(1) and 170(b)(1)(A)(vi) and section 509(a)(2). In relevant part, the final regulations changed the computation period from the four-year period ending prior to the tax year being tested to a five-year period ending with the tax year being tested.

In 2015, the IRS and Treasury Department issued final regulations that modified the requirements for making a “good faith determination” about a foreign organization’s public charity status, including measures:

  • Expanding the category of individuals that may provide the written advice on which a private foundation ordinarily may rely in making its good faith determination to “qualified tax practitioners” (i.e., an attorney, certified public accountant, or enrolled agent as defined in Circular 230)
  • Eliminating from the safe harbor a foundation’s ability to rely on grantee affidavits
  • Requiring the written advice to be “current”

In addition, the regulations permitted sponsoring organizations of donor advised funds (DAFs) to use the guidance in making equivalency determinations until further guidance is issued.

Rev. Proc. 2017-53

Written advice that meets the guidelines of sections 4, 5, and 6 of Rev. Proc. 2017-53 ordinarily will contain sufficient facts concerning the foreign grantee’s operations and support to meet that requirement of the equivalency determination regulations. The private foundation still must meet the requirement to have reasonably relied in good faith on such written advice and must retain the written advice and make it available upon request to the IRS.


To meet the requirements of sections 4, 5, and 6, the written advice must:

  • Be written (or translated) in English (including all attachments)
  • Reflect the qualified tax practitioner’s own application of the law to the facts and own conclusion that the grantee is the foreign equivalent of a U.S. public charity
    • The written advice may reference attached affidavits and the practitioner may rely on translations of and public information concerning foreign laws and the advice of foreign counsel on questions of foreign law
  • Include an attachment, with English translation, of the grantee’s governing documents (e.g., articles of organization or bylaws), and identify the country in which the grantee is formed, if not otherwise evident
  • Identify the grantee’s charitable purposes and confirm that the grantee is not expressly permitted to engage in activities for non-charitable purposes
  • Confirm that the grantee is required to comply with the requirement to distribute all of its assets exclusively for section 501(c)(3) purposes on dissolution (which may require attaching an English translation of the applicable statutory law)
  • Confirm that the grantee has no members or shareholders that have an ownership interest in the income or assets of the grantee and that the grantee does not make distributions to any person other than for charitable purposes or in exchange for fair value
  • Confirm that the grantee does not engage in more than insubstantial lobbying or participate in any political campaign activity and confirm that the governing instruments do not expressly permit such activities
  • Discuss any organizations that control the grantee or are operated in connection with the grantee
  • Describe the past, current, and future activities of the grantee with sufficient detail to determine that the grantee would qualify as a public charity as of the date of the written advice (which may be accomplished through the use of affidavits and Form 990 or Form 1023 schedules)
  • Verify that the grantee has not been designated or individually identified as a terrorist organization by the U.S. government, as described in section 501(p)(2)
  • If a foreign school, set forth additional information to demonstrate that the organization does not have a policy of racial discrimination
  • If public charity status depends upon a financial test, include an attached financial schedule with enough information to demonstrate that the grantee satisfies the applicable financial test or tests (using financial data from the most recently completed tax year)
    • Special rules apply to organizations in their first five years
    • Otherwise, five years of financial data, including a schedule of amounts from disqualified persons, a schedule of gross receipts received from any one person if the amount exceeds the greater of $5,000 or 1% of the grantee’s total support, and a schedule of all donors whose support is included as public support solely because they are described in section 509(a)(1)
  • If a non-functionally integrated Type III supporting organization, a medical research organization, an operating foundation, or an exempt operating foundation, include additional information specific to that type of classification

KPMG observation

The revenue procedure also includes some favorable guidance in making equivalency determinations:

  • Foreign hospitals generally are not required to comply with section 501(r). Therefore the written advice does not need to address section 501(r).
  • Compliance with Rev. Proc. 75-50—which sets forth guidelines and recordkeeping requirements for determining whether section 501(c)(3) schools have racially nondiscriminatory policies—is not required to demonstrate that a foreign school grantee operates in a racially nondiscriminatory manner.  
  • In computing public support, solely for purposes of an equivalency determination, all contributions and grants from domestic and foreign governments constitute public support.

Rev. Proc. 2017-53 provides very detailed guidance for determining that written advice satisfies the requirements for an eventual good faith determination that a prospective foreign grantee is the equivalent of a U.S. public charity. To this end, private foundations (and sponsoring organizations of DAFs) need to consider revisiting their equivalency determination procedures; evaluating whether they meet the current guidelines; and if needed, enhancing the amount of information gathered from prospective grantees.


For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 |

Randall Thomas | +1 202 533 3786 |

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