The International Journal
of Not-for-Profit Law

Volume 2, Issue 2, December 1999

Canada / the United States

Tax Treaty – Guidance Regarding Implementation

The Internal Revenue Service has issued Notice 99-47 with guidance for implementing Art. XXI of the United States-Canada income tax convention. Art. XXI provides for the deduction of cross-border charitable donations and the reciprocal recognition of tax-exempt status for qualified organizations. Notice 99-47 states that the competent authorities of the United States and Canada have entered into a mutual agreement that charitable organizations that have been recognized as tax-exempt in the contracting state where they are organized will automatically receive recognition in the other contracting state without the requirement of undergoing the administrative application procedure in that other state. The notice provides that this reciprocal treatment will apply to US organizations that are recognized by the IRS as tax-exempt under para. 501(c)(3) of the IRC and to Canadian organizations that have been recognized by Revenue Canada as Canadian registered charities.

Charitable organizations that are recognized as tax-exempt in the contracting state where they are organized will be eligible to receive tax-deductible contributions from residents of the other contracting state. In the case of contributions made by US residents, the limitation applicable to donations made to private foundations will apply unless the Canadian registered charity provides the United States with the information necessary to determine that it is not a private foundation. Notice 99-47 also contains the return filing, administrative and compliance requirements that apply under the mutual agreement (Internal Revenue Bulletin, 1999-36 I.R.B. 391, 7 September 1999).