Social media has helped to make our world smaller and when natural disasters and tragedies occur we want to help with contributions of money and/or other types of aid. At home, countless charitable organizations are providing all types of help and generally, your contributions to U.S. charities are tax-deductible. Contributions to foreign charities generally are not tax-deductible; however, special rules apply to charitable organizations in Canada, Israel and Mexico.
First, let’s take a brief look at some of the rules for U.S. charities. A charitable deduction is allowed only for a gift of money or property made to or for the use of an organization that meets qualification requirements. Charitable contributions of $250 or more must be substantiated by a contemporaneous written acknowledgment from the charitable organization to be deductible.
It is not enough that a domestic charity is “tax-exempt.” The charitable organization must be qualified at the time of the contribution. It is the organization’s responsibility to ensure that its character, purposes, activities, and method of operation satisfy the qualification requirements, so donors have assurance that their contributions are tax-deductible at the time made.
While a domestic charity can use contributions abroad, it cannot merely transfer them to a foreign charity. Contributions generally are deductible only if it can be shown, among other requirements, the domestic charitable organization is not serving as an agent for, or conduit of, a foreign charitable organization.
Special rules apply to charitable organizations in Canada, Israel and Mexico. Contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada may be tax-deductible. Generally, the taxpayer must have income from sources in Canada.
The U.S.-Israel income tax treaty provides that a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U.S. law. Among other requirements, the taxpayer must have income from sources in Israel.
The same approach applies to contributions to Mexican charitable organizations. Under the U.S.-Mexico income tax treaty, a contribution to a Mexican charitable organization may be deductible, but only if and to the extent the contribution would have been treated as a charitable contribution to a public charity created or organized under U.S. law. Among other requirements, the taxpayer must have income sources in Mexico.
Please contact our office for more details.