Contents

INTERNATIONAL GIVING BY INDIVIDUALS DURING LIFETIMEtheir disbursement to foreign charitable organizations and activities is strictlycontrolled and managed by U.S.-based charitable entities.An increase in the mobility of managers of multinational companies and atendency toward retirement in foreign countries have led to greater foreignproperty ownership. These facts, coupled with the increase in transborder philanthropicactivity by residents and businesses in industrialized countries, havegreatly expanded the likelihood that transborder charitable mechanisms will bean important part of estate planning.The extent to which gifts by bequest to foreign charitable organizations willbe deductible under the American estate and gift tax schemes is discussed elsewhere.1 These tax provisions do not prohibit the use of funds overseas. Gifts toforeign corporations serving charitable purposes and donations to governmentalentities that act as trustees in directing the funds to charitable purposes maybe deductible.Also described elsewhere are the methods by which an American companycan obtain tax benefits through the practice of overseas corporate giving. 2 Particularattention is given to the utility of a corporate foundation. In this sense, thechapter also discusses the rules and regulations governing overseas activities ofAmerican private foundations, inasmuch as corporate grant-making foundationsare generally technically classified as private foundations. 3§ 18.2 BACKGROUNDPrior to passage of the Revenue Act of 1938, U.S. individual taxpayers wereallowed to make deductible contributions to charitable organizations regardless ofwhere the organizations had been created or were located. Corporations did notenjoy this freedom: The Revenue Act of 1936, 4 which first allowed a deduction forcorporate charitable contributions, limited that deduction to contributions to organizationsestablished in the United States that used the contributions within theUnited States.The rule treating individual contributions was modified by the Revenue Actof 1938. That Act 5 provided that contributions by individuals were deductibleonly if the recipient was a domestic organization. The House Ways and MeansCommittee report in this regard 6 declared that the rationale for allowing thesedeductions was that any loss of tax revenue was seen to be offset by relief of anobligation that otherwise would require public funds. Obviously, gifts to foreigninstitutions did not produce any of these benefits.According to this committee report:Under the 1936 Act the deduction of charitable contributions by corporationsis limited to contributions made to domestic institutions . . . . The bill providesthat the deduction allowed to taxpayers other than corporations be alsorestricted to contributions made to domestic institutions. The exemption from1 See Chapter 19.2 See Chapter 20.3 A summary of the definition of the term private foundation is in § 3.4.4 § 102(c).5 § 23(o).6 H.R. Rep. No. 1860, 75th Cong., 3d Sess. 19–20 (1938). 548