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Posted by cballard@tyyni.net on April 12, 2007, 6:32 pm
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> Hello, what is the opinion or advice one can provide for
> this tax and charity case study:
>
> A US-based American citizens couple plan to open a
> non-profit organization (a healthcare clinic or an
> orphanage) when they retire in 25 years in a foreign country
> (Mexico or SE Asia). They plan to contribute $10,000
> annually beginning now to some sort of fund/trust/
> foundation that accumulates over the next 25 years. The
> money will use to build and run the non-profit organization
> in the chosen foreign country.
>
> In addition, they may have donated funds from others in the
> US over time to help fund this cause. Obviously, the donors
> would like to have a tax deduction allowance in their
> returns.
>
> Question: Does the current US tax laws allow them to
> write-off the $10,000/yr as a tax deductible to a charity
> trust/fund?
>
> Option: If needed, the couple can use invest the $10,000/yr
> to buy the land or assets at that foreign country until it's
> mature in 25 years and convert it into the non-profit
> organization by selling those assets. Or they can build the
> skeleton non-profit organization now and expand it over the
> years as funds arrive annual.
We don't have enough information to give a detailed answer,
so the following is a generalization. Until there is an
actual operating charity, the best you are going to be able
to do under US tax law is to set up a foundation. The
foundation would need to secure its own tax exempt status
with the IRS. During the time that it is accumulating
rather than operating, the foundation will be required to
pay out approximately 5% of its assets each year to
charitable organizations that are operating and that are
publicly supported. Once the foundation switches into its
operating phase, it can apply to the IRS to be reclassified
as a "private operating foundation", which will eliminate
the 5% payout requirement.
The fact that the charity plans to operate abroad creates
additional potential US tax problems. The IRS is hesitant
to grant tax exemptions to organizations that plan to
operate exclusively outside of the US.
--Chris
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