New Equivalency Determination Guidance for Not-for-Profits: Revenue Procedure 2017-53

On September 14, 2017, the IRS released Revenue Procedure 2017-53, which provides updated guidance for private foundations that make grants to foreign organizations.

Grants to foreign organizations are generally prohibited unless that private foundation takes extra steps in one of two ways:

  • Expenditure responsibility. This involves reviewing how the foreign recipient spends its funds to assess that all grants are used for the established purpose.
  • Equivalency determination. This requires assessing if the recipient would’ve received tax exemption in the United States based on the IRS’ requirements.

A foreign equivalency determination may be a more efficient option to expenditure responsibility if a grant to a foreign organization is a large sum, or if the grant:

  • Occurs over several distributions
  • Funds a long-term program
  • Is used to purchase assets


There are two main steps to the equivalency determination under Revenue Procedure 2017-53. The grantor must make a good faith determination and a reasonable judgment based on preferred written advice that the grantee is a:

  • 501(c)(3) organization—other than by reason of Section 509(a)(4)
  • Qualifying public charity for purposes of subsections 4942(g) and 4945(d)(4)

Preferred Written Advice

Ordinarily, a private foundation’s determination will be considered made in good faith by the IRS if it’s based on preferred written advice that’s:

  • Current—relating to the present or immediately preceding year
  • Prepared by a qualified tax practitioner—meaning an attorney, certified public accountant (CPA), or enrolled agent who is subject to the standards of practice before the IRS set forth in Circular 230 (31 CFR Part 10)
  • Concluding that the grantee is a qualifying public charity 

Under this rule, the preferred written advice must give enough facts concerning the foreign grantee’s operations and financial support to enable the IRS to determine that the grantee would likely be classified as a qualifying public charity if it were based in the United States as of the date of the written advice.

At this stage, the practitioner will re-create a Form 1023 that provides the IRS an explanation of why the foreign grantee would likely qualify as a public charity.

Preferred written advice that follows the guidelines of Sections 4–6 of Revenue Procedure 2017-53 will automatically be considered to meet IRS standards.

Considerations for Tax Practitioners

When preparing preferred written advice, a qualified tax practitioner must take the following into account:

  • Preferred written advice and any attachments to it must be written in or translated to English.
  • Qualified tax practitioners must make their own application of the law to the facts and own conclusion that the grantee is a qualifying public charity. An organization can no longer rely on affidavits provided by the grantee regarding equivalency.
  • Grantors and qualified tax practitioners may rely on translations of and public information concerning foreign laws that meet the requirements of 501(c)(3).

Determining 501(c)(3) Status

The preferred written advice determining a foreign grantee’s 501(c)(3) status should:

  • Provide all governing instruments translated to English. This includes any of the entity’s organizing documents, which will vary between countries, but are the foreign equivalents to articles of incorporation and bylaws.
  • Identify the tax-exempt purpose or purposes under Section 501(c)(3) for which the grantee is organized
  • Confirm that the grantee isn’t expressly permitted to engage in activities for noncharitable purposes other than as an insubstantial part of its activities
  • Verify that upon dissolution, all of the grantee’s assets will be distributed to another not-for-profit charitable organization for charitable purposes or to a governmental entity for a public purpose
  • Attest that the grantee has no shareholders or members who have an ownership interest in the income or assets of the grantee
  • Support that the grantee doesn’t distribute any of the grantee’s income or assets to a noncharitable organization or individual or apply any of the grantee’s income or assets for the benefit of a noncharitable organization or individuals
  • Confirm that the grantee undertakes no or limited lobbying and no political activities and validate that the grantee’s governing instruments don’t expressly permit such activities
  • Discuss any organizations that control the grantee or are operated in connection with the grantee
  • Describe the past, current, and anticipated—over the term of the grant—activities of the grantee, including details such as the manner of carrying out the activities, sources of receipts, and types of expenditures sufficient to enable the IRS to determine that the grantee would likely be classified as a qualifying public charity as of the date of the written advice
  • Include verification that the grantee hasn’t been designated or individually identified as a terrorist organization by the United States Government as described in Section 501(p)(2)

Determining Public Charity Status

Once it’s been determined that the foreign recipient organization meets IRS standards as a charitable entity, the next step is to complete the verification of public charity status so that the grant isn’t considered a taxable expenditure under 4945(d)(4) and is considered a qualifying distribution requirement under subsection 4942(g). The qualified tax practitioner should use whatever tools the grantee would normally employ to prove that it wouldn’t be considered a private foundation if it were a domestic organization.

In some cases, the appropriate section of Schedule A of Form 990 should be fully completed with all required details attached and kept in the equivalency determination file. In the case of private operating and exempt operating foundations, the private operating foundation’s schedule from Form 990-PF should be used. 

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If you’d like to learn more about how guidance from Revenue Procedure 2017-53 may impact your not-for-profit organization, contact your Moss Adams professional.

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