On Aug. 1, 2025, the Internal Revenue Service issued Private Letter Ruling 202531009, offering essential insight into the compliance requirements for private foundations supporting foreign organizations through its grant program. The PLR supports more creative funding structures through foreign intermediary organizations to further its charitable purposes.
The PLR addresses common organizational and operational compliance considerations for U.S.-based charitable organizations engaged in global philanthropy, especially those working through foreign intermediary organizations.
Grantmaking Through Foreign Organizations
A U.S. not–for-profit corporation (the Foundation) qualified as a tax-exempt under Internal Revenue Code Section 501(c)(3) requested rulings under IRC Sections 501, 4941, 4942 and 4945 in connection with certain grants the Foundation planned to make to certain foreign intermediary organizations that make their own grants to support the Foundation’s mission in supporting health and welfare of the elderly and promotion of education and access in the arts. The PLR addressed the application of IRC Sections 4941 (self-dealing), 4942 (qualifying distributions) and 4945 (taxable expenditures) in a structure involving tiered grant-making through intermediary foreign organizations.
The grant program is the Foundation’s primary method of meeting its charitable purpose. Under the program, the Foundation would make grants to three foreign organizations, A, B and C. A, B and C would make grants, in turn, to organizations in the foreign country where the Foundation engages in, to promote projects related to the furtherance of education, the arts for individuals, including children and teenagers and, health, welfare and access for the elderly in economically disadvantaged communities. After A and B merged into a surviving organization, D, the Foundation continued to support foreign charitable activities through grants to C and D. The Foundation represented that the foreign organizations are registered charitable, tax-exempt organizations in the foreign country and met the charitable purposes requirements aligned with IRC Section 501(c). While each foreign organization has a separate board of directors, the Foundation represented that there is overlap between the board members of the Foundation and the foreign organizations.
Notably, the overlap only represents a minority of the board in each instance. Further, the Foundation noted that it has no conflicting interests, such as employment, economic benefit or influence from disqualified persons under IRC Section 4946 in foreign organizations. The Foundation did its due diligence in reviewing all governing and organizational documents and is aware of the foreign organization’s activities due to having overlapping board members. The Foundation also exercises expenditure responsibility pursuant to Section 4945(h) and related regulations by requiring that the foreign organizations use the grants exclusively for charitable use pursuant to IRC Section 170(c)(2)(B) and maintain the grant funds in a separate dedicated fund. The agreement between the organizations also prohibits using the funds for any taxable expenditure pursuant to Section 4945(d). The foreign organizations retain full discretion and control over the use of the funds subject to the expenditure responsibility agreement, and the Foundation doesn’t earmark or exercise any authority or control over the selection of the secondary grantees by the foreign organizations.
Qualifying Distribution
Accordingly, citing revenue rulings specifically identifying promotion of the arts, service for the elderly and education of children and teenagers as qualifying charitable purposes, the IRS ruled that the Foundation’s grant to the foreign organizations was paid for a charitable purpose and was a qualifying distribution under Section 4942. The funds distributed to the foreign organizations to later be distributed as secondary grants didn’t constitute undistributed income triggering a tax under 4942(a) because the Foundation doesn’t earmark the use of the funds by the secondary grantees nor does it, directly or indirectly, select the secondary grantees.
No Tax on Expenditures
The IRS also ruled that the Foundation wasn’t subject to a tax on expenditures under Section 4945(a) because it exercised expenditure responsibility by using all reasonable efforts to ensure grant use would exclusively be for charitable purposes, including requiring full and complete expenditure reporting from the grantees and providing thorough expenditure disclosures to the IRS. The Foundation also complied with all the requirements for the expenditure agreement pursuant to Treasury Regulations Section 53.4945-5(b)(3).
No Self-Dealing
Finally, the IRS ruled that the Foundation wasn’t engaging in any self-dealing under Section 4941(a) through its structure and operation of its grant-making activities because the shared foundation managers between the Foundation and the foreign organizations only created an incidental or tenuous benefit, if any, from the possible public recognition for the charitable work.
PLR’s Impact on Cross-Border Philanthropy
The PLR offers clarity and eases ambiguity on compliance in cross-border philanthropy. With significant oversight and a compliant structure, the PLR affirms that tiered grantmaking through intermediary foreign organizations is feasible. Global philanthropy has faced increasing struggles with the changing geopolitical landscape as it’s lost access to major sources of funding, such as through USAID. The ability of private foundations to fund essential charitable purposes globally through intermediaries and further impact through secondary grantees, as exemplified by the PLR, provides an urgent and viable opportunity in philanthropic impact.
The PLR supports favorable treatment of organizations that have clear documentation of the grant purposes, implement detailed and transparent mechanisms to trace grant spending and provide institutional separation between the funders and the beneficiaries. Focusing on compliance from the inception of a grant program through its implementation remains critical to ensure success in cross-border philanthropy to fund necessary charitable activities, whether for the vulnerable among the elderly or the young, to promote health and welfare globally and whether through multinational organizations or through tiered grantmaking that may ultimately support grassroots efforts in philanthropy.
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