Is a charitable income tax deduction allowed for gifts of non-cash property donated to a foreign charity?
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A charitable income tax deduction is generally not allowed for gifts of non-cash property (or cash) donated directly to a foreign charity. The Internal Revenue Code, Treasury Regulations, and IRS guidance establish that, for a contribution to be deductible under section 170, it must be made to or for the use of a qualified organization, which is typically a domestic organization—meaning one created or organized in the United States or its possessions and operated exclusively for charitable purposes.
Key Legal Requirements
1. Qualified Organization Requirement
- Section 170(c)(2) defines a "charitable contribution" as a contribution or gift to or for the use of a corporation, trust, or community chest, fund, or foundation created or organized in the United States or its possessions, and operated exclusively for religious, charitable, scientific, literary, or educational purposes, among others.
- Contributions made directly to foreign organizations do not meet this requirement and are not deductible.
2. Exceptions for Certain Foreign Charities
- There are limited exceptions for certain Canadian, Mexican, and Israeli charities, but only if the donor has income from sources in those countries and the charity qualifies under an applicable tax treaty. Even then, the deduction is subject to special limitations and requirements.
3. Domestic Charities Supporting Foreign Activities
- A contribution to a domestic charity that uses funds for charitable purposes abroad may be deductible, provided the domestic charity retains full control and discretion over the use of the funds and is not merely acting as a conduit for the foreign organization.
- The IRS has ruled that contributions to a domestic charity are deductible even if the funds are used in foreign countries, as long as the domestic charity exercises control and discretion over the funds and the use of the funds furthers its own exempt purposes.
4. Disregarded Entities
- Contributions to a disregarded entity (such as a single-member LLC) wholly owned and controlled by a U.S. charity are treated as contributions to the U.S. charity for deduction purposes, even if the disregarded entity is foreign, provided the U.S. charity retains full control and the entity is treated as a branch of the U.S. charity for federal tax purposes.
Application to Non-Cash Property
- The same rules apply to non-cash property as to cash: a direct donation of property to a foreign charity is not deductible for U.S. income tax purposes.
- If the property is donated to a domestic charity, which then uses or transfers the property for charitable purposes abroad, the deduction is allowed, provided the domestic charity retains control and discretion over the property and its use.
Summary Table (for clarity, not as a summary table per instructions):
Conclusion
A charitable income tax deduction is not allowed for gifts of non-cash property donated directly to a foreign charity, except in the limited treaty-based exceptions for certain Canadian, Mexican, and Israeli charities. However, a deduction is allowed if the donation is made to a domestic charity that retains full control and discretion over the use of the property, even if the property is ultimately used for charitable purposes abroad.
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