As described elsewhere on our site, an equivalency determination (ED) is a written opinion, by a qualified U.S. tax practitioner, that a non-U.S. organization is equivalent to a U.S. public charity. The ED does not make a judgment on the value of the work conducted by the non-U.S. organization or the efficacy of its programs. It is simply an opinion that the organization's purposes and activities align with those required to be recognized as a tax-exempt charity in the U.S.
As we embark on the start of a new year, many of us at NGOsource are reflecting on the significance of the past year and looking optimistically toward the new year. We're also thinking about how a new year will impact the Equivalency Determination (ED) validity period. The ED validity period, dictated by U.S. tax law, indicates when a private foundation or donor advised fund (a “grantmaker”) can rely on the written advice provided in the ED.
In earlier posts, we've restated the definition of "charitable" under the U.S. Treasury Regulations, noting that charities in the U.S. must be organized and operated exclusively for charitable purposes. Understanding the breadth and nuance of the term “charitable,” as defined under U.S. law, is important for organizations seeking an equivalency determination (ED) through NGOsource.
As further elaborated on NGOsource's website, equivalency determination (ED) is a process dictated by U.S. tax law regulations that permits a U.S. private foundation or donor advised fund to make a "good faith determination" that a non-U.S. organization is the equivalent of a U.S. public charity or operating foundation. As part of the ED process, a qualified tax practitioner collects and analyzes detailed information about a non-U.S. organization's finances, structure, and operations.
What Is Dissolution?
Dissolution is the termination or closing of an organization in its present state. There are various reasons an organization would need or want to dissolve. For example, the organization might have fulfilled its mission or lack sufficient resources to effectively carry out its work. Perhaps there is no longer a need for the organization’s services, or it is dissolving as a result of a merger.
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U.S. law has not always prohibited tax-exempt charities from engaging in political campaign activities. In 1954, Congress approved an amendment by then U.S. Senator Lyndon Johnson to prohibit 501(c)(3) organizations from engaging in political campaign activity. This amendment came to be known as "the Johnson Amendment," and it is now codified in the Internal Revenue Code and accompanying Treasury regulations.
Expenditure responsibility, or ER, describes a set of monitoring and oversight procedures that a U.S. private foundation or donor advised fund (DAF) must follow when making grants to organizations that are not 501(c)(3) public charities or their foreign equivalents. The purpose of ER is to ensure that the grantor's funds are used exclusively for charitable purposes.
In a previous post, we introduced the concept of "nonprofit vs. charitable" under U.S. tax law. In this post, we will further expand on the definition of charitable, and will specifically focus on income-generating activities — a common source of confusion with respect to charitable activities.