Expenditure Responsibility

Assuring Use of Funds for Charitable Purposes

The IRS has approved two methods for making tax-effective cross-border donations. Expenditure Responsibility (ER) is one of them.


Expenditure Responsibility (ER) is a tool used to enable foreign organizations not recognized as equivalent to a US 501(c)(3) public charity to receive tax-effective donations from US donors.  

ER provides donors a flexibility that Equivalency Determination (ED) cannot while maintaining full regulatory compliance. The review conducted under ER focuses on the project, as opposed to the organization as a whole. This creates the opportunity for donors to support the charitable activities of foreign NGOs, social enterprises, or even for-profit entities that are unable to qualify under the stringent requirements of an ED review, but are completing a charitable, non-profit project.


Expenditure Review focuses on establishing that grant funds will support specific charitable activities or projects laid out in a grant agreement. The need to establish only the project being funded as charitable makes ER the more flexible option compared to ED. While the ER process is less onerous, it requires strict due diligence and other steps to firmly establish regulatory compliance. The grantor will need to:
 
  • Conduct a pre-grant inquiry that ensures the intended grantee’s ability to fulfill the charitable purpose of the grant
  • Rely on a written grant agreement that restricts the use of the granted funds for their specified charitable purpose
  • Collect grantee reports at least annually for the useful life of the grant
  • Require the grantee to maintain funds in a separate, dedicated account
  • For private foundation grantors, report the grant on the grantmaker’s Form 990-PF

Enhanced Expenditure Responsibility (EER) is our unique protocol, combining a heightened internal due diligence that resembles that of ED with the flexibility offered by traditional ER. Our proprietary Enhanced Expenditure Responsibility (EER) process provides us with the unparalleled ability to guarantee regulatory compliance, risk mitigation, and reputation protection for our donors.


While ER is often the more flexible option, it does require grantees to submit annual reports stating how grant funds were used in compliance with the executed grant agreement. These reports must be submitted annually until the grant funds are extinguished in full.

ER may not always be the best solution for your cross-border giving. For example, ER grants used to fund endowments or purchase capital assets can be very burdensome as they may require reporting in perpetuity. ED offers US donors an alternative method for cross-border giving. Learn more here.


Podcasts

Expenditure Responsibility Listen Read
ED & ER: In Focus Listen Read
Grantee Reporting Listen Read

Blogs

ED vs ER: Which is Right for You? Read

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NGO America is a project of CAF America, a global grantmaking organization founded in 1991 and part of the CAF Global Alliance. CAF America was the first to answer Secretary of State Hillary Clinton’s call in 2012 to help U.S. donors take advantage of reduced barriers to international philanthropy. An expert in theoretical, legal, and practical challenges of cross-border giving, CAF America established NGO America to share its expertise and to provide simple solutions to this complex process.