For U.S. grantmakers
Equivalency Determination or Expenditure Responsibility?
Paragon Philanthropy does not provide legal or tax advice. This page offers general information on how these rules work, not advice on any particular grant.
U.S. private foundations and donor-advised fund sponsors that make grants to non-U.S. organizations generally use one of two approaches: an Equivalency Determination (ED) or Expenditure Responsibility (ER). This page compares the two and explains how Paragon supports each.
Why the Choice Arises
A U.S. private foundation that makes a grant to an organization other than a U.S. public charity generally must exercise Expenditure Responsibility over the grant, or the grant can be a taxable expenditure (a grant on which the foundation can owe excise tax) under Internal Revenue Code (IRC) section 4945. For a non-U.S. grantee, a good faith determination that the grantee is the equivalent of a U.S. public charity provides an alternative. The regulations give a foundation a practical route to that determination: relying on current written advice from a qualified tax practitioner (an attorney, certified public accountant or enrolled agent). Treasury Regulation section 53.4945-5 addresses both. Grants from donor-advised funds follow a parallel, but not identical, framework under IRC section 4966, and IRS Revenue Procedure 2017-53 provides ED guidelines for both private foundations and donor-advised fund sponsors.
A non-U.S. organization’s lack of an IRS determination letter does not, by itself, prevent these grants; ED and ER are the two approaches commonly used to make them.
| ED | ER | |
|---|---|---|
| What it is | A grantmaker’s good faith determination that a non-U.S. organization is the equivalent of a U.S. public charity, based on current written advice from a qualified tax practitioner prepared under IRS Revenue Procedure 2017-53 | A set of procedures for a specific grant: a pre-grant inquiry, a signed written agreement with prescribed terms, annual and final grantee reports, and reporting to the IRS |
| What it covers | The grantee organization’s status. The same written advice can support more than one grant while it remains current | A particular grant. Each grant follows its own procedures |
| Who can rely on it | The grantmaker to which the qualified tax practitioner issues the advice. A copy received from another funder is not enough; Paragon can arrange reissue to a new grantmaker. | The grantmaker that carries out the procedures |
| How long it lasts | Generally up to two years after the end of the grantee’s last financial reporting period covered by the advice, under the currency rules in the Treasury regulations. The advice must be current on each payment date | Grantee reporting continues until the funds are fully spent and a final report is made; grantor reporting follows the IRS rules |
| Grant agreement | The ED provisions themselves do not require a written grant agreement; other requirements or the grantmaker’s policies may | Required, with prescribed terms covering grant purposes, repayment, reporting, recordkeeping, access to records, and restrictions on use |
| What the grantee provides | Documentation on its governance, finances, sources of support, and activities | Pre-grant information, then reports on how the grant funds were spent |
| Ongoing oversight | No grantee or IRS reporting is required by the ED rules; the advice must be current on each payment date | Annual and final grantee reports, and grantor reporting to the IRS, until the funds are spent |
| Applies to | Organizations that qualify as the equivalent of a U.S. public charity, whether through broad public support or as a school, hospital or similar institution | Can be used for any grantee organization, including organizations that do not qualify as public-charity equivalents |
Points That Are Often Misunderstood
- Neither approach ranks above the other. An ED concerns the grantee’s status; ER governs a particular grant. A grantmaker may use an ED for one grantee and ER for another, including ER for a grantee that could qualify for an ED.
- Neither approach replaces sanctions compliance. ED and ER are tax rules; U.S. sanctions and anti-terrorism laws apply separately to every grant, whichever approach is used.
- Foreign law can matter too. Many countries regulate how local organizations receive funds from abroad, for example through registration, prior government approval, or reporting of foreign funding. These rules apply alongside ED or ER, not in place of them, and Paragon reviews them as part of its foreign country requirements review steps.
For how each approach works in practice, including ED validity, the repository and what grantees are asked to provide, see the Equivalency Determination FAQs and the Expenditure Responsibility FAQs.
How Paragon Supports Each Approach
Paragon facilitates EDs through the ED PLUS service; the written advice behind each ED that Paragon facilitates is issued by an independent provider, not by Paragon. Where an ED has already been completed for a grantee and is held in the repository, Paragon arranges for the original practitioner to reissue the advice to the new grantmaker. Paragon facilitates each ER step for grantmakers through the ER PLUS service, from the pre-grant inquiry through collection and review of grantee reports. For both ED PLUS and ER PLUS, Paragon’s vetting team collects and reviews the grantee’s documentation, carries out Anti-Terrorist Financing Screening (ATFS) of the grantee, and reviews applicable foreign country requirements.
Whether an ED is available depends on whether the grantee qualifies as the equivalent of a U.S. public charity. Which approach a grantmaker uses for a particular grant depends on its own policies and, where appropriate, advice from its counsel.
Grantmakers outside the United States: see Regional guidance for Canada and the EU.
Last reviewed October 2026.
Related
The ED PLUS service facilitates the full Equivalency Determination process.
The ER PLUS service facilitates each Expenditure Responsibility step.