Cross-Border Philanthropy: A U.S. Perspective

Abstract

Americans lead the world in supporting charitable activities (both in the U.S. and abroad). For foreign charitable activities, two key questions arise:

1. Should tax benefits support charitable activities outside the U.S.?
2. Should the U.S. tax system treat contributions to foreign charities differently from contributions to domestic charities?

U.S. tax law imposes remarkably low barriers to cross-border philanthropy. Contributions to U.S. charities are deductible even if all charitable activity takes place outside the U.S. Nominally, direct contributions to foreign charities are generally not deductible for income tax purposes. Practically, donors can easily work around this restriction (at relatively low costs and complexity) by transmuting non-deductible contributions to foreign charities into deductible contributions to domestic charities.

The hard question is normative: what should the law be? This chapter provides a framework for examining the desirability of the current regime and the different factors policy-makers may find useful in considering options to either reduce or increase barriers to cross-border philanthropy.

Keywords: charitable contributions, tax-exempt organizations, philanthropy, cross-border charitable giving, tax reform