Tax and Other Considerations for Charitable Giving Abroad in Times of Crisis
Key Highlights :
As the world watches the heartbreaking events unfolding in the Middle East, many of us are moved to give to those suffering. But, when it comes to charitable giving abroad, there are certain tax and other considerations to keep in mind.
The IRS generally requires that donations be made to a qualified organization in order to receive a tax deduction. These organizations include religious organizations like churches, synagogues, temples, and mosques in the U.S., as well as domestic nonprofit schools and hospitals. It also includes what we typically think of as charitable organizations like the American Red Cross and the United Way.
Unfortunately, donations to non-U.S.-based charitable organizations are typically not allowed a tax deduction. That’s made clear in the tax code under section 170(c)(2)(A), which 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.”
However, you may still donate to non-U.S.-based charitable organizations, but these donations are not considered tax-deductible charitable contributions.
Another way to provide aid in a foreign country while still qualifying for a deduction is to donate to U.S.-based organizations that assist individuals in foreign countries. Donations to those U.S.-based organizations, such as the Red Cross, will normally qualify for charitable deductions even if they are providing services in foreign countries so long as they otherwise meet the rules as domestic tax-exempt charities.
You should also be aware that non-tax rules may apply when sending money abroad to certain individuals or countries (including those subject to sanctions or on the Specially Designated Nationals and Blocked Persons list). Penalties for breaking the rules, even accidentally, can be severe. If you’re not sure, it’s always best to consult with a tax or legal professional before you give.
In some instances, taxpayers can rely on intermediaries to make tax-deductible charitable gifts to foreign organizations. An easy way to do that is to contribute to a donor-advised fund, or DAF. DAFs are giving accounts established at public charities. When you donate to a donor-advised fund, you are generally eligible to take an immediate tax deduction even if the funds aren’t immediately turned over to charity.
There are some statutory exceptions to the U.S.-based charitable organization rule, including those for charitable organizations in Canada, Mexico, and Israel. For example, under the U.S.–Israel income tax treaty, a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U.S. law.
When considering charitable giving abroad, it’s important to do your homework and stick to reputable organizations. You should also be aware of the tax and other legal considerations that may apply. But, most of all, you should be sure that your donations are making a difference in the lives of those who need it most.
