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§ 20.4 GRANTS OF FUNDS FROM U.S. CORPORATION-RELATED FOUNDATION(e) Grants to Charitable Organizations and EquivalentsThe determination letter issued by the IRS, recognizing an organization to be atax-exempt charitable entity, establishes that the IRS has found the organizationto be in pursuit of charitable purposes. This letter reflects the IRS’s findings that:• The organization is organized and operated exclusively for religious, charitable,scientific, testing for public safety, literary, or educational purposes;to foster national or international amateur sports competition; or for theprevention of cruelty to children or animals• No part of the net earnings of the organization inures to the benefit of anyprivate shareholder or individual• No substantial part of the organization’s activities is the carrying on ofpropaganda programs or otherwise attempting to influence legislation• No part of the organization’s activities is participating in or intervening inany political campaign on behalf of or in opposition to any candidate forpublic officeU.S. law permits foreign organizations to qualify for recognition of tax exemption.The tax exemption provision 37 merely refers to “an organization described in”appropriate categories as being tax-exempt, and another provision of law 38 refersspecifically to restrictions on foreign organizations that can obtain tax exemption ascharitable organizations. U.S. law defines private foundation as “a domestic or foreignorganization” that is a charitable entity. 39According to the IRS, in excess of 500 foreign organizations, predominantlyin the fields of education, agriculture, and health, have sought determination ofexempt organization status.As with domestic charitable organizations, a private foundation may inlarge part rely on the tax exemption determination of the overseas exempt organizationto support the determination that a grant to that organization is for acharitable purpose. This strong presumption is permissible because the recipientorganization is itself answerable to the IRS (as is any charitable organization) onthe question of whether the funds are used for a charitable purpose.Typically, however, a foreign organization will not have obtained recognitionof tax exemption as a charitable entity from the IRS. Thus, an American privatefoundation that is a prospective grantor must establish that the potentialdonee organization is organized and operated in a manner consistent with a taxexemptcharitable organization, thus constituting the equivalent of a tax-exemptcharitable organization.Charitable organization equivalents are foreign organizations that have notobtained determination letters from the IRS but that are organized and operatedin such a manner that they can quite easily be determined to be equivalent topublic charities under U.S. law. A private foundation is well advised, in thesecircumstances, to develop its own form modeled after the IRS’s application for37 IRC § 501(a).38 IRC § 4948.39 IRC § 509(a) (emphasis added). 575