3 on the 3rd: What All Companies Need to Know About Global Philanthropy Changes

December 3, 2012

BCLC's new executive interview series, 3 on the 3rd, is dedicated to providing deep and valuable business insights delivered in a quick manner. As the column name suggests, interviews are three questions in length and air on the 3rd of the month.

This month I interviewed John Harvey, Managing Director of Global Philanthropy at the Council on Foundations (COF). Recent changes to federal regulatory classifications could have significant impact on global grantmaking. See what COF, one of the leading national advocates for philanthropy, sees as the global implications for these national changes.

1. The U.S Department of Treasury and the Internal Revenue Service recently recommended a significant change in determining whether a foreign nongovernmental organization (NGO) meets U.S standards for charitable giving. Please summarize this recommendation.

The recent announcement by the IRS is the result of years of work on the part of the Council on Foundations and key allies, including TechSoup Global and many Council members, to create a more conducive environment for cross-border grantmaking by U.S. private foundations. We are delighted that our hard work has at last paid off, resulting in the most positive regulatory change for global grantmaking in two decades.

Private foundations wishing to make a grant to a foreign organization that lacks a determination by the IRS of charitable status have two options: expenditure responsibility and equivalency determination. In the case of expenditure responsibility, the foundation closely document the grant and monitors how funds are spent to ensure charitable purpose. In the case of equivalency determination, the foundation undertakes a process to assess whether a potential grantee is the equivalent of a U.S. public charity.

Till now, an equivalency determination could be based on either an affidavit of a foreign organization or an opinion of counsel. Unfortunately, neither option is ideal. Both can be incredibly time consuming, and the latter rather expensive. The newly proposed regulations have expanded the range of professionals upon whose written advice may be relied for the purpose of equivalency determination. Rather than just an attorney, such professionals now include qualified tax practitioners subject to Circular 230 requirements, namely an attorney, a certified public accountant, or an enrolled agent. Significantly, the proposed regulations allow a private foundation to rely on written advice of a qualified tax practitioner without establishing an attorney-client relationship between the tax practitioner and the grantmaker or grantee.

This guidance is a building block toward our streamlining effort and the launch of NGOsource, an equivalency determination service established by TechSoup Global and the Council that will help U.S. grantmakers with equivalency determinations and establish a centralized repository for such determinations. Although additional work remains to be done, these regulatory changes are a very strong step in advancing this long-term effort to make cross-border grantmaking more efficient and cost-effective.

2. Why is this change significant for global corporate philanthropy? When does the change go into effect?

Among all foundation types, corporate foundations are experiencing some of the most significant growth in terms of global grantmaking. But capacity and cost to engage globally can be a big issue for many corporate foundations. These changes and the establishment of a service like NGOsource will be of tremendous value to corporate foundations, which will now be able to rely on specialized professionals to conduct the often difficult and costly equivalency determination process. The changes took effect immediately upon the release of the IRS announcement.

3. What are specific examples of how NGOsource, or other equivalency determination repositories, will benefit corporate grantmakers?

Corporate grantmaking must be as streamlined and cost-effective as any other business function. NGOsource will lower the cost of equivalency determinations, freeing up more corporate assets. These assets can then be used to increase the impact of grant programs on society and their value to business.

For those corporate grantmakers that have not yet ventured into international giving, NGOsource will lower the barrier to entry. As business becomes more global, so too does our awareness of the global interconnectedness of the problems that face society and the need for global solutions to complex social challenges. Corporate grantmaking and investment has the potential to unleash new resources and catalyze innovative ideas that enhance the company’s positive impact on society.

Giving globally is also made more complicated by corporate philanthropy’s cultures and customs, which differ greatly from country to country. For this reason, NGOsource uses a unique network of global partners to offer high-quality support to intended grantees during the equivalency determination process. NGOsource partners’ knowledge of local languages and customs, close connections to their local NGO community, and personalized counseling result in the most trustworthy equivalency determinations.

Additionally, when natural disaster strikes, corporations are increasingly among the first to respond, supporting vital relief efforts in the communities where they do business and beyond. Disaster relief efforts need to move fast—and so do the funds for those efforts. Using NGOsource for equivalency determination can bring a higher level of efficiency to disaster relief grants, helping corporate grantmakers make an immediate difference in communities facing sudden crisis.