Plenty of U.S. public charities fund work overseas, and there’s nothing wrong with that. But the IRS does expect you to show that your money went toward actual charitable purposes, not just out the door with a handshake and good intentions.
A 501(c)(3) public charity can grant directly to a foreign organization, even if that organization doesn’t have its own IRS tax-exempt status. You don’t need to go through a U.S. intermediary. But you do need to maintain enough control and discretion over the funds so that your organization can demonstrate the money was used for purposes consistent with your exempt mission. That’s the IRS’s way of saying: this is still your responsibility.
Before you fund a foreign grantee, do your homework. Understand what the organization does, who runs it, and whether it has the capacity to carry out the project. This doesn’t need to be a forensic audit, but it should be more than a Google search. Document what you reviewed and why you felt comfortable moving forward.
In general, a solid international grant agreement includes certain elements:
- A clear description of the charitable purpose the funds are meant to support
- An anti-terrorism/OFAC clause confirming the grantee won’t divert funds to sanctioned individuals, entities, or countries
- A requirement that the grantee report back on how funds were spent, with enough detail that you could explain it to the IRS if asked
- The right to suspend or claw back the grant if the grantee goes off-track or can’t account for the money
- A return-of-funds provision for anything not used for the stated purpose
- A prohibition on using grant funds for political activity or lobbying
And before you send a single dollar, screen your grantee against OFAC’s Specially Designated Nationals list. Every time, not just the first time. And if your board hasn’t formally approved an international grantmaking policy, it’s a good idea to put one in place. It doesn’t need to be long, but it should lay out your due diligence process and who has authority to approve foreign grants. That paper trail is what protects you if questions come up later.
