Can contributions of non-cash property to a U.S.-based charity that grants funds to foreign organizations qualify for a charitable deduction?

Yes, contributions of non-cash property to a U.S.-based charity that grants funds (or property) to foreign organizations can qualify for a charitable deduction, but only if certain requirements are met. The key legal issue is whether the contribution is truly “to or for the use of” the U.S. charity, rather than being a contribution earmarked for, or effectively made to, the foreign organization. The U.S. charity must have full control and discretion over the use of the donated property, and the contribution must not be earmarked for a specific foreign recipient. Below is a detailed analysis of the relevant legal requirements and authorities:

1. Statutory Requirements

Section 170(c)(2) of the Internal Revenue Code provides that a charitable contribution is deductible only if made to or for the use of a corporation, trust, or community chest, fund, or foundation that is:- Created or organized in the United States or its possessions,- Organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, and- No part of the net earnings inures to the benefit of any private shareholder or individual, and- Not disqualified for tax exemption due to lobbying or political activity.

A contribution to a foreign organization is not deductible unless an exception under a tax treaty applies (e.g., certain Canadian, Mexican, or Israeli charities, and only to the extent of income from those countries).

2. U.S. Charity as a Conduit vs. True Recipient

a. Conduit Rule

If a U.S. charity is merely acting as a conduit—i.e., it is required by its charter, bylaws, or by agreement with the donor to transmit the property or funds to a foreign organization—then the contribution is not deductible. The IRS and courts look to the substance of the transaction, not just the form.

• Rev. Rul. 63-252: If a domestic charity is required to turn over contributions to a foreign organization, or if the donor earmarks the contribution for a foreign organization, the deduction is disallowed. The domestic organization is only nominally the donee; the real donee is the foreign organization.
• Examples: If the U.S. charity’s governing documents or solicitation materials indicate that all or a specific contribution must be sent to a foreign organization, the deduction is not allowed.

b. Control and Discretion Test

If the U.S. charity retains full control and discretion over the use of the donated property, and the contribution is not earmarked for a specific foreign organization, the deduction is allowed—even if the U.S. charity later decides to use the property or funds to support a foreign organization.

• Rev. Rul. 66-79: Amplifies Rev. Rul. 63-252 to clarify that a U.S. charity may solicit funds for specific projects to be carried out by a foreign organization, as long as the U.S. charity’s board reviews and approves the project as furthering its own exempt purposes, retains control and discretion over the use of the funds, and may withdraw approval at any time. The U.S. charity must refuse contributions that are earmarked to go to the foreign organization regardless of its own discretion.
• LTR 8839029: The IRS ruled that contributions to a U.S. charity that supports foreign activities are deductible if the U.S. charity’s board retains full control and discretion over the use of the funds, reviews and approves grants, and requires periodic accounting from grantees.

3. Substantiation and Documentation

• The U.S. charity must be able to demonstrate that it exercises control and discretion over the use of the property or funds, including reviewing grant requests, approving projects, and requiring periodic reports from grantees.
• The donor must obtain a contemporaneous written acknowledgment from the U.S. charity for contributions of $250 or more, and comply with all substantiation requirements for non-cash contributions (such as Form 8283 and, if applicable, a qualified appraisal).

4. Special Rules for Inventory and Certain Property

• For contributions of inventory or certain property, special rules may apply regarding the use of the property and the type of recipient organization. For example, under section 170(e)(3), a corporation may be entitled to an enhanced deduction for inventory contributions, including those ultimately used outside the U.S., if the U.S. charity is a corporation and all other requirements are met.

5. IRS Publication Guidance

• Publication 526: Reiterates that contributions to foreign organizations are generally not deductible, but contributions to a U.S. charity that uses the funds in a program conducted by a foreign charity may be deductible if the U.S. charity approves the program as furthering its own exempt purposes and keeps control over the use of the funds. The deduction is also allowed if the foreign charity is only an administrative arm of the U.S. charity.

6. Summary of Key Requirements

To qualify for a charitable deduction for a non-cash property contribution to a U.S.-based charity that grants funds or property to foreign organizations:- The U.S. charity must be a qualified organization under section 170(c)(2).- The U.S. charity must have full control and discretion over the use of the property or funds.- The contribution must not be earmarked for a specific foreign organization or project unless the U.S. charity retains the right to withdraw approval and use the funds for other charitable purposes.- The U.S. charity must not be required by its charter, bylaws, or by agreement with the donor to transmit the property or funds to a foreign organization.- The donor must comply with all substantiation and documentation requirements.

If these requirements are met, the contribution is considered “to or for the use of” the U.S. charity and is deductible under section 170.

Caveat: If the contribution is earmarked for a specific foreign organization or the U.S. charity is required to transfer the property or funds to a foreign organization, the deduction will be disallowed.

7. Conclusion‍

A contribution of non-cash property to a U.S.-based charity that grants funds to foreign organizations can qualify for a charitable deduction if the U.S. charity is a qualified organization, retains full control and discretion over the use of the property, and the contribution is not earmarked for a specific foreign recipient. Proper substantiation and documentation are also required.