Many non-profits are formed for charitable purposes in other countries – disaster relief, preserving native eco-systems, supporting refugees, etc. There is nothing questionable about wanting to make the world a better place, even when that part of the world is far away.

However, because there are so many bad actors in the world, the U.S. federal government puts special requirements in place to prevent the diversion of charitable funds or exploitation of charitable activity by terrorist groups and their support networks. Your non-profit organization will have to take this into consideration both at the time it first applies for tax-exempt / 501(c)3 status and while it conducts ongoing operations in other countries.

Applying for tax-exempt status

When you apply for tax-exempt status, you’ll need to address the following points with respect to your foreign activities:

1) Familiarize yourself with and reference the Treasury Department‘s suggested best practices for US-based charities.

2) Explain what administrative controls you’ll put in place to ensure that any goods or funds you distribute are used for their intended charitable purposes.

Operating in foreign countries

Whether your staff working is overseas, you’re awarding grants to foreign individuals, or sending donated goods to recipients in other countries, your organization is expected to be diligent in maintaining oversight. At a minimum, the following measures should be followed:

1) Comply with all US statutes, executive orders and regulations that restrict or prohibit US entities from  transactions with certain countries, entities and individuals. It sounds onerous but it really isn’t. Any organization or individual you plan to send money or other contributions to should first be checked against the current list of organizations and individuals that are subject to sanctions.  This list is maintained by the Office of Foreign Assets Control (OFAC) and is available online. US entities are not allowed to engage in any transactions with anyone included on this list.

2) Where possible, look for US-based tax-exempt affiliates of your foreign beneficiaries that are already associated with the subject of your charitable purposes. Since these organizations have already passed scrutiny (when applying for tax exempt status), transferring donations through them is assumed to be legitimate.

3) Have a plan for exercising ongoing control and responsibility over how any funds or goods you’re giving to foreign organizations or individuals are used.  There are several options for implementing such oversight. The most straight forward is requiring your beneficiaries to submit period reports that demonstrate how your donations have been used – including providing receipts for purchases, photographs of materials in use, and so on.

This is the minimum your organization should be doing if it operates in other countries. Your board should discuss these activities and ensure sufficient precautions are in place.

If you would like to discussion your organizations foreign activities to ensure it’s in compliance, fee free to schedule a consultation with Zak Shusterman.