Yes, Your Foundation Can Fund Work Abroad
If your foundation's mission points overseas — funding a clinic in Kenya, a girls' school in Guatemala, disaster relief in the Philippines — the good news is that nothing in the law stops a U.S. private foundation from making international grants. Foundations do it constantly, and cross-border grants count toward your annual payout just like domestic ones.
The catch is procedural. When you grant to a U.S. public charity, the IRS has already vetted that organization and issued a determination letter. A foreign organization almost never has one. So the burden of proving the money went to charitable purposes shifts onto your foundation, and the IRS gives you exactly two sanctioned ways to carry it: equivalency determination and expenditure responsibility. Skip both, and the grant becomes a taxable expenditure under IRC §4945 — a 20% excise tax on the foundation plus 5% on any manager who approved it knowingly.
This guide walks through both paths, how to choose between them, the anti-terrorism screening you cannot skip, and the practical mechanics of getting money across a border cleanly.
Why Foreign Grants Are Different
Everything traces back to the taxable expenditure rules in IRC §4945. A private foundation may only make grants that further charitable purposes, and it has to be able to demonstrate that. For a domestic public charity, the IRS determination letter does the demonstrating for you. For a foreign grantee, you have to supply the proof yourself, one grant at a time.
There's a second layer specific to international work: anti-terrorism compliance. After Executive Order 13224 and the USA PATRIOT Act, funding an organization tied to terrorism carries severe legal consequences that have nothing to do with the tax code. Every foreign grant has to clear sanctions screening before a dollar moves.
Neither of these makes international grantmaking impractical. They just mean you can't wire money abroad on a handshake the way you might cut a check to the food bank down the street.
Path 1: Equivalency Determination
Equivalency determination (ED) is a good-faith determination that the foreign grantee is the equivalent of a U.S. public charity. If you can document that equivalency, you're allowed to treat the grant much like a domestic public-charity grant — no ongoing monitoring, no separate reporting on your 990-PF, and you can fund general operating support rather than a narrow project.
The governing rules are Rev. Proc. 92-94, updated by Rev. Proc. 2017-53, which tightened the standard. You can no longer rely on a simple grantee affidavit alone. The determination must rest on written advice from a "qualified tax practitioner" — an attorney, CPA, or enrolled agent — who reviews the grantee's organizing documents, activities, and financial data and opines that the organization would qualify as a public charity if it were based in the U.S.
In practice, an ED involves:
- A grantee affidavit describing the organization's structure, governance, and activities, often on a standardized template
- Financial data — typically several years of support figures, since public-charity status can hinge on a public support test
- A translation of governing documents where needed
- A written opinion from the qualified tax practitioner, valid for a defined period (generally up to two years of the grantee's accounting data)
Many foundations that make repeat international grants use a commercial equivalency determination repository (services like NGOsource) that maintains current EDs for thousands of foreign organizations and shares them across funders — cheaper and faster than commissioning a one-off opinion.
When ED makes sense: a large grant, a multi-year commitment, general operating support, or a grantee you expect to fund repeatedly. You pay the upfront cost of the opinion once and then administer the grant with a light touch.
Path 2: Expenditure Responsibility
The alternative is expenditure responsibility (ER) under IRC §4945(h) — the same procedure a foundation uses to fund any non-501(c)(3) grantee. Instead of proving the grantee is charity-equivalent up front, you take on an active obligation to monitor how the money is spent.
ER requires five things:
- A pre-grant inquiry into the grantee's identity, capacity, and history, sufficient to give you reasonable assurance the funds will be used for the intended charitable purpose
- A written grant agreement committing the grantee to use funds only for charitable purposes, to keep the money in a separate account or otherwise segregate it, to return unused funds, and to provide reports
- Regular grantee reports on how the money was actually spent
- Separate disclosure of each ER grant on Form 990-PF, Part VII-B
- A dedicated file for each grant, retained for the life of the grant plus your recordkeeping window
If the grantee diverts funds, your foundation has to take reasonable steps to recover them and report the diversion. The upside: no practitioner's opinion required, so ER is cheaper and faster to start.
When ER makes sense: a one-time grant, a smaller or newer grantee, project-restricted funding you'd want to track anyway, or a situation where commissioning an equivalency opinion costs more than the grant justifies.
Choosing Between the Two
Here's the practical decision:
| Factor | Lean Equivalency Determination | Lean Expenditure Responsibility | |--------|-------------------------------|--------------------------------| | Grant size | Large | Small to moderate | | Frequency | Recurring / multi-year | One-time | | Funding type | General operating support | Project-restricted | | Grantee maturity | Established, audited financials | Newer, thinner records | | Upfront cost tolerance | Willing to pay for an opinion | Prefer no opinion cost | | Ongoing admin capacity | Want minimal monitoring | Can collect and review reports |
A useful rule of thumb: ED front-loads the work and cost, then runs light. ER starts cheap, then requires you to stay engaged. A foundation making a single $15,000 grant to a small village cooperative will usually reach for ER. A foundation committing $250,000 a year to an established international relief organization will usually invest in an ED.
You can also mix approaches across your portfolio — ED for your anchor international grantees, ER for opportunistic or first-time grants.
Anti-Terrorism Screening: Not Optional
Whichever path you choose, sanctions screening comes first and applies to every foreign grant. Before funds move:
- Run the grantee and its principals (directors, officers, key staff) through the OFAC Specially Designated Nationals list at sanctionssearch.ofac.treas.gov. It takes minutes and it's free.
- Document the screening in the grant file with the date, the names checked, and the result. A clean screen you didn't record is a screen you can't prove you ran.
- Consider the Treasury's Anti-Terrorist Financing Guidelines. They're voluntary, not law, but they lay out a due-diligence framework — vetting the organization, its leadership, and its sources and uses of funds — that demonstrates good faith if your grants are ever questioned.
For grants to regions under comprehensive sanctions, or where you have any doubt, get specific legal advice before proceeding. This is one area where the cost of getting it wrong dwarfs the cost of a consultation.
The Practical Mechanics
Beyond the compliance framework, cross-border grants add a few operational wrinkles worth planning for.
Currency and transfer. Decide whether you're granting in U.S. dollars or the local currency, and who bears the exchange risk and wire fees. Spell it out in the grant agreement. International wires can carry meaningful fees and intermediary-bank deductions, so for smaller grants confirm how much will actually land.
Reporting cadence and language. Set report deadlines the grantee can realistically meet, and be explicit about whether reports and receipts need to be in English. Build in extra time — international mail, translation, and time zones all add friction.
Grantee capacity. Apply the same due diligence you'd use domestically — financial health, leadership stability, track record — adjusted for the reality that a small foreign NGO may not have audited statements or a polished 990 equivalent. Judge capacity in context, not against a U.S. benchmark.
It still counts toward your payout. A qualifying international grant counts toward your 5% minimum distribution under IRC §4942 exactly like a domestic grant. The procedure changes your paperwork, not whether the grant qualifies.
Common Mistakes
Treating a grantee affidavit as an equivalency determination. Since Rev. Proc. 2017-53, an affidavit alone isn't enough — you need the qualified practitioner's written advice on top of it. Foundations relying on old affidavit-only files may have an exposure they don't realize.
Letting an equivalency determination go stale. EDs have a shelf life tied to the grantee's accounting period. Re-granting on an expired ED is the same as having no ED. Track expiration dates the way you'd track any other deadline.
Skipping OFAC screening because the grantee "is obviously legitimate." The screen is free and fast, and the penalty for funding a sanctioned entity is catastrophic. There's no defensible reason to skip it.
Forgetting the separate 990-PF disclosure for ER grants. Expenditure responsibility grants must be reported individually on Part VII-B. Rolling them into your general grant list is an incomplete return.
Using ER but never collecting the reports. ER isn't a box you check at disbursement — it's an ongoing obligation. If you fund a foreign grantee under ER and never follow up for the required reports, you haven't actually exercised expenditure responsibility, and the grant can become a taxable expenditure after the fact.
When to Get Help
Most of international grantmaking is process work, not legal work — running the OFAC screen, building the grant agreement, tracking reports and distribution, and keeping clean files. That's operational, and a capable foundation manager can handle it.
Two pieces genuinely benefit from professional input. The equivalency determination opinion must come from a qualified tax practitioner — that's not a task you can insource. And comprehensive-sanctions or high-risk jurisdictions warrant specific legal counsel before you move money.
For everything in between — deciding whether ED or ER fits a given grant, building your international grant agreements, standing up a screening and documentation routine, and making sure every cross-border grant is reported correctly on your 990-PF — that's exactly what Wylie Advisory's foundation services are built for. Whether you want a governance review of your current grantmaking practices, advisory calls to talk through a specific cross-border grant, or an ongoing retainer that manages the full grantmaking process, we work at whatever level of involvement fits your foundation.
International grantmaking should expand what your foundation can accomplish, not intimidate you out of the work. Pick the right path for each grant, screen every recipient, document as you go — and your mission can reach as far as it needs to.