New IRS Regulation Could Impact Giving to Foreign Missions

The IRS explains the new rule.

Church Law and Tax 1991-05-01 Recent Developments

Charitable Contributions

The IRS has proposed a new regulation that could have a significant impact on charitable giving to foreign missions. The new regulation would add paragraph (e)(12) to section 1.861-8 of the income tax regulations. The new paragraph provides that a taxpayer must “allocate” a charitable contribution deduction to “United States source income” or “foreign source income.” In explaining the new rule, the IRS has stated:

The taxpayer shall allocate a deduction for a charitable contribution solely to United States source gross income if (1) the taxpayer, at the time of the contribution, both designates the contribution for use solely in the United States and reasonably believes that the contribution will be so used, and if (2) the contribution is not allocable to foreign source gross income under the following rule. The taxpayer shall allocate a deduction for a charitable contribution to foreign source gross income if the taxpayer, at the time of the contribution, knows or has reason to know that (1) the contribution will be used solely outside the United States, or that (2) the contribution may necessarily be used only outside the United States.

It is not clear at this time what this language means. For example, will United States citizens be denied charitable contribution deductions for donations they make to foreign missions if they have no foreign income against which the contribution can be “allocated?” Further, what does the IRS mean by a contribution that “will be used solely outside the United States”? Many denominations operate foreign missions programs that deduct a small percentage of foreign missions contributions for the administrative expenses of the missions agency (located in the United States). Are contributions to such foreign missions programs “used solely outside the United States”? It would seem that they would not. This is an important point that needs clarification. The IRS has invited comments on the new regulation, and especially “comments on the effects of the proposed rules on United States charities with significant international activities.” Persons wishing to seek clarification of the new regulation, or express their opposition, should send a signed original letter (plus 8 copies) to: Internal Revenue Service, P.O. Box 2604, Ben Franklin Station, Attn: CC:CORP:T:R (INTL-116-90), Room 4429, Washington, DC 20044. Be sure to refer to proposed regulation § 1.861-8(e)(12). Comments must be received by the IRS no later than May 13, 1991. So, if you plan to send comments, you must do so immediately. Church Law & Tax Report will be sending comments and seeking clarification. We will publish any further information as soon as it is available. IRS Proposed Regulation § 1.861-8(e)(12).

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