International philanthropy is heartily encouraged under US tax laws, which generously allow section 501(c)(3) nonprofits to financially support other organizations and projects operating entirely outside the United States. But foreign grantmaking rules for 501(c)(3) organizations differ depending on whether an organization is a public charity, a private foundation, or a sponsoring organization for donor advised funds (DAFs). Nonprofit leaders should therefore understand not only what rules apply, but also available compliance options.
Many nonprofit leaders and tax practitioners have eagerly awaited news of whether the United States Supreme Court would consider a legal challenge to California’s requirement that 501(c)(3) public charities annually submit a list of their major donors to the California Attorney General, as contained in their IRS Form 990 Schedule B return. On January 8, 2021, the Supreme Court granted a petition for writ of certiorari in Thomas More Law Society v. Becerra, consolidating that case with Americans for Prosperity Foundation v. Becerra. In these troubled times of increasing polarization, protests, and “cancel culture” tactics, these cases represent extremely important constitutional freedom issues that will substantially affect public charity operations and associated privacy rights of their donors.
A key element of public charity status under Section 501(c)(3) is satisfying the ongoing “public support” requirement. Supporting organizations, however, are a special subset of public charities that are not required to directly satisfy this public support test. Rather, they secure their tax-exempt status by virtue of their relationship with another public charity. What exactly is a “supporting organization”? How does it fit into the taxonomy of 501(c)(3) organizations? And how are they practically utilized by nonprofits?