International Charitable Giving And Planning ... - Phillips Nizer LLP

GRANT-MAKING PROCEDURES FOR CONTRIBUTIONS TOSUPPORT FOREIGN CHARITABLE ACTIVITIES AND ENTITIESIn the wake of the September 11, 2001 attacks, the U.S. Treasury Department made adetermination that three U.S.-based charitable organizations were linked to foreignterrorist organizations, including Al-Qaeda and Hamas. These determinations led to awider focus on the grant-making activities and procedures of U.S. charitableorganizations that distribute funds abroad, whether in the form of overseas programs ordonations to foreign charitable entities. In November, 2002, the Treasury Departmentissued "Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-BasedCharities" and in the spring of 2003, the Internal Revenue Service issued Announcement2003-29, "International Grant-making and International Activities by Domestic 501(c)(3)Organizations: Request for Comments Regarding Possible Changes."Voluntary Best PracticesThe Treasury Guidelines cover a broad range of considerations that go beyond strictconcern about the destination of foreign charitable donations, covering governance,disclosure about governance and finances, financial practice and accountability, as wellas "Anti-terrorist Financing Procedures."GovernanceThe governance guidelines, which seem to overlook the fact that domestic charities canbe organized as trusts as well as corporations, urge that each charitable organizationshould have basic governing instruments, a board of directors with at least threemembers, and policies on conflicts of interest. The governance guidelines state that acharity whose directly or indirectly compensated board members constitute more thanone-fifth of the total voting membership of the board or executive committee "will not beconsidered to have an independent governing body."Disclosure/TransparencyThe Guidelines urge that a charity make public a list of its board members and thesalaries they are paid for their services, a list of its five highest paid employees and thesalaries and benefits they receive, and any subsidiaries or affiliates that receive fundsfrom it. The Guidelines also urge that the charity provide upon request an annual reportand annual financial statements. In jurisdictions like New York that provide forgovernmental oversight of private charities, most charities are required to produce a formof annual report and annual financial statements.Financial Practice and AccountabilityThe Guidelines, among other matters, provide that if a charity's total annual gross incomeexceeds $250,000, the charity's board should select an independent certified publicaccounting firm to serve as an auditor and issue a yearly audited financial statement.Anti-Terrorist Financing ProceduresThe guidelines urge that a domestic charity should collect what the Guidelines call "basic"information about a foreign recipient organization, including the foreign recipient's namein English and the addresses of its places of business abroad, the jurisdictions in which itis present, the jurisdiction in which it is organized and incorporated, and "a detailed reportof the recipient's projects and goals." Furthermore, the Guidelines provide that thedomestic charity should gather information about the organizations to which the foreignTax Management Estates Gifts and Trusts Journal © 2005 Tax Management Inc.® Pg. 19