What is an Equivalency Determination (ED)?
An equivalency determination is a good faith determination that a non-U.S. organization is the equivalent of a U.S. public charity.
The Concept of Charity
In the U.S., “nonprofit status” is a state law concept, and “charity status” or what is “charitable” is a federal law concept. Charitable is a difficult concept, but is usually described as the following types of mission-based activities: religious, educational, scientific, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals. More specifically: providing relief to the poor, the distressed, or the underprivileged; advancing religion; advancing education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
To qualify as a U.S. public charity (or its equivalent), an organization must be organized and operated exclusively (primarily) for charitable purposes.
What types of organizations qualify for an ED?
To qualify as the equivalent of a U.S. public charity, an organization must be organized and operated exclusively for charitable purposes. The following types of organizations qualify as public charities:
- Religious organizations (like churches and temples), hospitals, medical research organizations, and educational institutions (like universities or schools);
- Organizations that are publicly supported (these are organizations that receive at least 33 1/3% of their funding from the public or from their exempt activities) and operate exclusively for charitable purposes.
How is an ED made?
An ED is based on a set of detailed information about the organization’s operations and finances, grounded in U.S tax laws and regulations. Specifically, a non-U.S. organization is deemed equivalent to a U.S. public charity if it meets the following three requirements:
- It is organized like a U.S. public charity;
- It is operated like a U.S. public charity; and
- It meets certain minimum public support requirements (if required).
What does it mean if my organization is unable to be certified?
If your organization does not qualify for equivalency, it does not mean that your organization is not charitable, and it does not affect your organization’s status within your own country. It simply speaks to the inherent differences in organizational structures and legal requirements between the U.S. and other countries.
Some of the more common reasons that an NGO cannot be certified as a public charity equivalent under U.S. law are: (1) political activity, (2) excessive lobbying, (3) improper dissolution clauses, and (4) failure to meet public charity financial support requirements. In some cases, an organization that does not qualify as the equivalent of a public charity might qualify as a private foundation or a government instrumentality.
If your organization is not certified as equivalent to a public charity in the U.S., your grantmaker cannot rely on an ED certification to fund your organization. If this is the case, your grantmaker might decide to work with NGOsource to identify the reasons your organization is unable to be certified, and if applicable, work with you to meet the requirements for ED. They might also choose to use a different process called expenditure responsibility (ER). While NGOsource does not provide direct support for the ER process, we can refer interested funders to organizations that support this process.