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Message to CAF America donors on reliance standards for making good faith determinations

Posted By WINGS, Tuesday, October 6, 2015

Dear CAF America Donors and Partners,

As we have shared with you many times, the IRS provides for two protocols that allow CAF America to make international charitable grants advised by you - these are Expenditure Responsibility (ER) and Equivalency Determination (ED).

The reason I am writing to you today is to share with you the welcome news that the IRS has recently issued very favorable new regulations to guide the practice of Equivalency Determination also referred to as ED.

To further assist in the understanding of these new regulations, we have scheduled a new edition of the CAF America Radio Network Show for October 8, 2015 at 2:30 E.S.T. You are encouraged to join us for this show (please invite colleagues and friends). The live show and subsequent podcast will be available here.

Effective September 25, 2015, the IRS and the Department of Treasury have published final regulations concerning the practice of Equivalency Determination (ED). The Reliance Standards for Making Good Faith Determinations is welcome news for grantmakers, as it clarifies the standards to be applied by international grantmakers in the process of making a good faith determination that a foreign organization is the equivalent of a public charity; thus, grants made to that foreign organization may be qualifying distributions and not taxable expenditures.

Since 2012, CAF America has been conducting its activities abiding by the proposed IRS regulations that were released at that time. CAF America donors and partners can therefore expect a seamless implementation of these permanent regulations.

The Reliance Standards for Making Good Faith Determinations clarify multiple aspects of conducting equivalency determinations (ED). Here are some of the key points we would like to bring to your attention:

  • The final regulations now confirm that ED can be used by sponsoring organizations of Donor Advised Funds (DAFs) - such as CAF America - in determining whether a foreign organization is the equivalent of a public charity.
  • Grantmaking organizations seeking to complete an ED - such as CAF America in its role as an international grantmaker - can now rely on written advice from “Qualified Tax Practitioners” such as attorneys, certified public accountants, or enrolled agents when conducting EDs. CAF America has always prepared ED certificates with written advice from our attorneys.
  • This written advice must have substantial factual basis and must rely on current legislation and current documents provided by grantees; however, an attorney-client relationship is not necessary for this advice to be considered valid under law. This is a change from previous ED regulations where a grantmaker was able to rely solely on a grantee affidavit to make their determination. It is now necessary for the facts stated within the affidavit to be substantiated. CAF America has never relied solely on a grantee affidavit and has been very concerned about the practices of those organizations who have. CAF America has always provided a much more comprehensive due diligence evaluation for ED. The Department of Treasury is allowing a 90-day period for foundations to comply with this change. CAF America is already in compliance with these regulations.
  • If the ED is based on a 5-year public support test, the ED is “current” for two years following the end of the test period. The previous regulations were vague on the amount of time that an ED remained valid.

Beyond addressing the standards applicable in ED, amendments were made to bring the final regulations into full compliance with statutory amendments made by the Deficit Reduction Act of 1984 and the Pension Protection Act of 2006. You can access the entire text of the final regulations on the IRS portal.

What does this mean for CAF America donors? 

When the proposed regulations were released in 2012, CAF America took significant steps to develop best practices for our Equivalency Determination (ED) protocols to match those regulations. For many grantmakers, the new restriction prohibiting reliance solely on a grantee affidavit may be a difficult and costly adjustment. However, CAF America has always made it a policy to substantiate the grantee affidavit by requesting supporting documentation from grantees, researching local nonprofit law, and verifying the income sources reported in the public support test.

We maintain this best practice both for the EDs we complete for our own grantmaking as well as for the ED certificates that we develop for other donors. These final regulations not only provide us with the affirmation that CAF America can rely on EDs as a sponsoring organization for DAFs, but they validate the high standards and best practices that we have been applying to our work in this area all along. Moreover, the IRS final regulations now provide for all ED certificates prepared by CAF America to be valid for two years which means that the costs for an ED will remain the same for CAF America donors and it holds more value because of the longer duration of reliability.

Please join us on October 8, 2015 for the CAF America Radio Network live call in show to explore these new regulations further, or feel free to call us at 202-793-CAFA.


Theodore R. Hart, ACFRE, CAP® 
CAF America

Tags:  North America 

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