How Does A 501c3 Give A Donation To A Foreign Person?

[aldric13]

Our church wants to give a donation to a foreign person in Japan due to the disaster there. Are we required to withhold taxes from the donation and what forms does the foreign person have to complete? Thank you for your time.

[Aitan]

See  www.irs.gov/pub/irs-wd/0504031.pdf for details about

international grants to and international activities of U.S. exempt

organizations, and, especially page 3-4 about grants to foreign

organizations starting on page 3 at "Deductibility - Control

Rules".

Grants to individuals are not taxable to them. The Internal Revenue Code at section 102(a) provides that generally

gifts are not income.  "Gross income does not include the value of

property acquired by gift..."http://codes.lp.findlaw.com/uscode/26/A/1/B/III/102

However, section 102(c) of the Code has "Subsection(a) shall not

exclude from gross income any amount transferred by or for an

employer to, or for the benefit of, an employee...."

Note Revenue Ruling 56-304 which has:

--- Start of Excerpt ---

Organizations privately established and funded as charitable

foundations which are organized and actively operated to carry on

one or more of the purposes specified in section 501(c)(3) of the

Internal Revenue Code of 1954, and which otherwise meet the

requirements for exemption from Federal income tax are not

precluded from making distributions of their funds to individuals,

provided such distributions are made on a true charitable basis in

furtherance of the purposes for which they are organized.

However, organizations of this character which make such

distributions should maintain adequate records and case histories

to show the name and address of each recipient of aid; the amount

distributed to each; the purpose for which the aid was given; the

manner in which the recipient was selected and the relationship,

if any, between the recipient and(1) members, officers, or

trustees of the organization,(2) a grantor or substantial

contributor to the organization or a member of the family of

either, and(3) a corporation controlled by a grantor or

substantial contributor, in order that any or all distributions

made to individuals can be substantiated upon request by the

Internal Revenue Service.

---End of Excerpt---

The key issue is that the church should choose from a large class. As to the size of the class to be benefitted, see page 6 of the IRS

publication from 1999, "Disaster Relief And Emergency Hardship Programs"

---Start of Excerpt--

A disaster relief or emergency hardship organization will avoid the

problem of a limited class if, in addition to meeting the other

organizational and operational requirements, it defines its class

of beneficiaries in an "open-ended" manner.  For example, an

organization might be formed to aid those injured or killed while

undertaking fire fighting efforts.  This open-ended class would

include victims of future fires, rather than being limited to

victims of a particular fire.  If the class is open-ended, the

presence of ascertainable beneficiaries does not preclude exemption

under IRC 501(c)(3). However, the class must be truly open.  If an

organization operates to benefit particular individuals, the fact

that it broadly describes a theoretical class of beneficiaries will

not save it.  Bogert at section 363.

---End of Excerpt--http://goo.gl/tOUkd

How did you decide upon that one person?  Did you review the cases of many persons to decide who was most needy or what?

You don't need to answer me, but those are the type of questions that the IRS would have. Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.