Case Study: A Donation of Foreign Real Estate
“Giving can be as simple as writing a check; however, it is often a far more complex process that requires extensive resources and the support of a very committed team.”
A donor wished to donate real estate property located on Mexico’s Pacific Coast—valued at more than $9 million USD—to a local university in Mexico, while still receiving tax benefits in the US and maintaining compliance with both US and Mexican law. The university intended to use the donation as part of a campus expansion project to set up residences for visiting fellows and other scholars.
The donor wished to maximize their potential tax benefit while supporting an international cause of personal importance to them.
There were multiple additional factors to consider:
1. Ownership: Due to restrictive property regulations within the region where the property was located, there were multiple layers of ownership. The property was owned by a Mexican trust, which was in turn owned by a US trust.
2. International Donation: In order to comply with all legal considerations and fulfill the requirements of IRS regulations on charitable donations, the donor had to gift the property to a U.S. 501(c)(3) nonprofit organization, which then must have the ability to make the gift to the Mexican university.
3. Risk: CAF America’s due diligence process had to factor in additional elements because of the potential valuation of the donation, including the need for an independent and credible third party appraisal of the property. Additionally, Mexico held designated status as a medium-risk country for international grantmaking purposes at the time of the transfer, with gang and cartel violence reported in the region where the property was located adding to the need for caution and risk management.
Complex Asset Considerations
When CAF America is advised to grant property, we consider the following:
- The grantee must pass an Equivalency Determination review conducted by CAF America before we accept the donation. This means that we must be able to make a good faith determination that the grantee would otherwise be considered a public charity in the United States, and involves an intensive review of governing documents, financial statements, and other core information provided by the grantee.
- Not only must we comply with US rules and regulations around granting to non-US entities, but we must follow laws in the grantee’s country that govern gifts from foreign entities. This has the potential to complicate timelines and can lead to extensive legal reviews.
An international real estate firm in the US was hired to appraise the value of the real estate. This initial appraisal needed to be confirmed by a second real estate firm within Mexico to ensure that the valuation was appropriate.
Once an impartial third party completed a qualified appraisal, CAF America provided advisory support and conducted due diligence to ensure that the gift to the university would comply with US regulations governing cross-border giving.
After extensive work by CAF America staff, including in-person site visits, our Board of Directors approved the transaction. At the time of the transfer, both the donor’s team and CAF America’s Board were on standby in the US, while CAF America’s CEO and the other signatories were present in Mexico City. The trust and the property were successfully transferred to CAF America, who then finalized the donation to the university with approval from the Mexican government.
All those involved with the transaction deemed it a success: the client was able to claim US tax benefits, CAF America facilitated the charitable donation while minimizing any legal or reputational risks, and the university received a substantial addition to their new campus.