Equivalency Versus Expediency

For many CSR managers, one of the more challenging (mind numbing) aspects of transacting an international donation can be the regulatory hurdles, and for U.S. firms there are two IRS channels whereby this can be accomplished:

1. Equivalency Determination: Involves gathering a significant amount of background information and documentation from the foreign charity, and then having a US Based law firm review the materials and render an official opinion (which is valid only for one calendar year) as to whether the foreign charity is or is not in their estimation equivalent to a US charity.

2. Expenditure responsibility: means that instead of the above requirement, as an alternative the US Foundation can require the foreign charity to provide a full accounting of every penny spent on the charitable work supported by the grant from the US Foundation.

And recently, while assisting one firm understand their options, I was asked to provide my thoughts (given their project intentions) on the practicality of each.

1) Equivalency – this is a tool that is (should be) used when you have a long term program/ partnership. It is “evasive” in the sense that the documentation and application require the beneficiary to dedicate 10+ hours of time gathering data, forms, and writing proposals that would then be gathered by the donor and submitted. The first time we went through this, I believe it took a total of 2-3 months to complete and there was a lot back and forth on language, form structure, etc. It was actually the first time for that partner as well (Global 10 firm) and their lawyers were particularly strict.

The benefit of going through equivalency is that renewing is quite easy, and for the donor you are going through a process that you will be able to leverage again in the future for other organizations.

2) Expenditure Responsibility – this is a tool that is (should be) used for short term projects. It is less evasive than equivalency in terms of documenting the goals of the program up front, as well as in terms of diving into the benefactor, and the nice thing about this is that with a couple of signatures this process can be completed quite fast once the lawyers have drafted contracts.

There is no re-upping this though in the same sense as equivalency. the process must be repeated, and as such, the administration costs would be higher.

Additionally, when thinking about our experience with both of these, equivalency is also more strict on budgets in a sense as expenditures are typically for a short term/ defined use/ period, whereas programs under equivalency have a longer period to them. so, need to consider that as well

Which leads me to the role of intermediaries.

In my opinion, unless you are looking at a portfolio of short term projects, then your most efficient means is to do this in house through your legal, finance, and CSR team.

Now, for those of you who are reading, it is important to point out that the firm I was speaking with was global, has a (large) foundation, and support teams in both the firm and the foundation. So, before acting on my advice to them, my suggestion would be for you to seek out professional assistance (contact me here) before moving forward because the fact is that regardless of the route taken, it is a time intensive process that requires a significant amount of planning and paperwork, and speaking with someone who has gone through the process MANY MANY times will bring immediate benefit to you and your firm as you finalize the last programming hurdles.

Hope the above helps, and I would be happy to address any questions you may have.

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