Equivalency Determination FAQs

Through the ED process, a grantmaker gathers information and materials in order to make a good faith determination that the organization is the equivalent of a U.S. 501(c)(3) public charity. IRS Rev. Proc. 2017-53 provides the procedures, requirements, and guidelines for U.S. private foundations to make EDs for foreign grantees. 

No. Paragon is dedicated to reducing the barriers to cross-border philanthropy. In line with this vision, we are committed to making it as easy as possible for grantmakers to quickly secure EDs, including ready-to-go EDs in the repository.

Paragon provides a comprehensive service. We not only coordinate the ED written advice (prepared and issued to the grantmaker by an independent Supported ED Provider, or SEDP), but also carry out steps you would otherwise handle in-house for an international grant: pre-screening to identify any red flags that could prevent an organization from qualifying for an ED, Anti-Terrorist Financing Screening (ATFS) against global sanctions lists, including the OFAC Specially Designated Nationals (SDN) list, and a review of foreign country requirements affecting the grantmaker and the grantee. On request, Paragon also facilitates grant agreement e-signatures and collects wire transfer information, including verbal verification of wire details and confirmation of receipt of funds. By contrast, the fee charged by many ED providers usually includes only the ED itself.

The ED process typically takes about two weeks from the date all required documents are received from the grantee. Overall timing may vary depending on the grantee’s responsiveness and the completeness of the materials provided.

EDs are valid for up to two years. Specifically, the ED is valid two years from the end of the last accounting period for which financial information is received. For example, if a grantee provides financials through their accounting year ending December 31, 2020, the ED would be valid through December 31, 2022.

What matters is the payment date: the ED must be valid on the date each grant payment is made. If it will have expired by a planned payment, a recertification is needed before that payment can go out.

Any ED completed by a collaborating outside Qualified Tax Practitioner enters into the repository and becomes available to other grantmakers as long as the ED is current. Another grantmaker can rely on a repository ED only after a formal reissue to that grantmaker by the original issuing Qualified Tax Practitioner, which Paragon facilitates; receiving a copy of the ED is not sufficient. The reissue always includes an updated anti-terrorist financing screening. It is available on that basis alone, or together with Paragon’s other back-office services, which include review of regulations in the foreign country affecting the grantee and the grantmaker, transmission of the grant agreement to the grantee for signature, securing wire transfer information, and confirming grantee receipt of funds.

In addition to providing key organizational documents, the grantee is asked to complete an affidavit for non-U.S. grantees and a public support form*. The affidavit includes a series of specific assertions from the grantee and references documents the grantee should supply, including their charter, bylaws and other governing documents, and a list of the organization’s board of directors and key employees. The public support form allows the Qualified Tax Practitioner to determine whether the grantee will pass the “public support test.” To pass the public support test the organization normally must, over a five-year period, receive at least 33.33% of its total revenues as gifts or contributions from a broad section of the general public (though it can be as little as 10% if other “facts and circumstances” are present). The grantee is asked to enter information into the form on gifts, grants, contributions, and membership fees etc.

*Churches, schools, medical institutions, or government instrumentalities are not required to meet the public support test and are deemed publicly supported.

Which approach fits a particular grant is a legal question for your counsel. Adler & Colvin publishes a plain-English overview: Equivalency or Expenditure Responsibility? A Guide in Plain English.