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

Definition

Equivalency determination is the process by which a US private foundation makes a good-faith determination that a foreign grantee is the equivalent of a US public charity, allowing the grant to be treated like a domestic one.

It is a documentation exercise, not a judgement call. The foundation assembles the grantee's governing documents, financial history and description of activities, and written advice from a qualified tax practitioner supports the conclusion.

Grant Management
Published on
AI Summary
Summarize this page with AI

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.

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.

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.

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.

Summary
FAQ

Frequently Asked Questions

What is an equivalency determination?
icon lessicon less
What documents are needed for an equivalency determination?
icon lessicon less
What is the difference between equivalency determination and expenditure responsibility?
icon lessicon less
Does equivalency determination apply outside the United States?
icon lessicon less
Show more

Related terms

The newest terms we've added, the words teams managing grants, sponsorship, and CSR come across most often.

Grant Management

Post-Award

Post-award is the phase of the grant lifecycle that follows the funding decision: disbursing funds, tracking how they are spent, collecting grantee reports, measuring outcomes against the objectives set at the start, and closing the grant.

Post-award is where impact is either evidenced or lost. A funder whose attention stops at the payment has spent the money without being able to say what it produced.

Grant Management

Pre-Award

Pre-award is the first phase of the grant lifecycle: publishing the call, receiving applications, checking eligibility, scoring and shortlisting — everything that happens before funds are committed.

Pre-award decides a funder's selectivity. How many ineligible applications reach human reviewers, and how consistently the eligible ones are scored, is settled in this phase and cannot be repaired in the next one.

Grant Management

Expenditure Responsibility

Expenditure responsibility is the set of steps a US private foundation must take when it grants to an organisation that is not a public charity: a pre-grant inquiry, a written agreement restricting the use of funds, separate accounting by the grantee, reports on how the money was spent, and disclosure on the foundation's own return.

The obligation follows the money, not the recipient's good faith. Omitting a step is a compliance failure even where the funds achieved exactly what both parties intended.

Want to see how this dashboard works?

Book a 15-minute demo and we'll show you the exact setup our client uses to track 15+ regional programs.

Optimy Dashboard mockup