Equivalency Determination: judging a foreign grantee the equivalent of a public charity

What is an equivalency determination?

A US private foundation granting to an organisation outside the United States faces a question its domestic grants do not raise: the recipient has no IRS determination letter, so its status has to be established another way.

Equivalency determination is one of the two available routes. The foundation determines, in good faith and on documented evidence, that the foreign organisation would qualify as a public charity if it were American — after which the grant can be handled as a qualifying distribution without ongoing tracking obligations.

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What the file has to contain

The organisation's governing documents, showing a charitable purpose and that assets are dedicated to it. A description of actual activities, not only stated aims. And financial data covering enough years to test the organisation against the public support requirements.

The financial history is the part that most often stalls a determination. Public support is measured over several years, and a young organisation or one funded by a single donor may simply not be able to demonstrate it, however sound its work.

Written advice from a qualified tax practitioner is what makes the determination defensible. The foundation makes the decision; the practitioner's opinion is the evidence that it was made on a reasonable basis.

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Equivalency determination or expenditure responsibility?

They are alternatives, and the choice is strategic. Equivalency determination is front-loaded: substantial work before the first grant, then relatively little afterwards, and the determination can generally be relied on for a defined period.

Expenditure responsibility is the opposite shape — lighter to start, with obligations that continue for the life of the grant, including grantee reports and disclosure on the foundation's own return.

The practical rule of thumb: a single grant to a new partner usually goes the expenditure responsibility route, while a partner a foundation expects to fund repeatedly is worth the equivalency work once.

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Equivalency determination in a grant platform

A grant management software platform holds the determination file against the grantee record — governing documents, financial history, practitioner opinion and expiry date — so the next grant to the same partner starts from the existing file rather than from scratch.

It also keeps the two routes distinct. Tagging each grant with the basis used, and applying the corresponding due diligence requirements, prevents the common error of treating a grant as equivalency-based when the file never actually supported it.