When working with an intermediary grantmaker, it’s incredibly important that corporate funders avoid earmarking a grant. Just what is this common pitfall and how can you structure your international giving programs to avoid it?
If your organization works with an intermediary grantmaker, you might already know how an intermediary, often a public charity, can open doors to international giving and enable more flexible grantmaking. You may not be aware that working with an intermediary grantmaker requires keeping in mind complex charitable giving regulations, like those that restrict funders from “earmarking” a grant.
As an intermediary grantmaker ourselves, we at GlobalGiving understand that these regulations can be difficult to understand—and we are here to demystify them! Read on to learn what earmarking is and how to avoid it when partnering with an intermediary grantmaker.
Working with an intermediary grantmaker
Before we dive into earmarking, let’s start with some background on working with an intermediary grantmaker. Typically, when partnering with an intermediary grantmaker, a corporate funder or foundation will refer a charitable grant to the intermediary for consideration. Then, the intermediary grantmaker will conduct due diligence before deciding whether and how to award the grant. The intermediary grantmaker takes on responsibility for the grant, ensuring compliance with relevant regulations, monitoring the grant’s progress, and working with the grantee to ensure the grant’s success along the way.
What is earmarking?
When working with an intermediary grantmaker, the funder referring the grant to the intermediary must refrain from earmarking the grant. When working with an intermediary grantmaker like GlobalGiving, earmarking occurs when the funder—overstepping the role of its intermediary—promises funding to a potential grantee through either oral confirmation or a written agreement.
Why is it important to avoid earmarking?
If a corporate funder or foundation earmarks a particular grant, the United States Internal Revenue Service (IRS) may determine the funder should be held responsible for the grant instead of the intermediary grantmaker. In such a case, the funder might then be liable for penalty taxes under U.S. law.
Here’s how to avoid earmarking when partnering with an intermediary:
1. Refrain from promising a potential grantee funding, verbally or in writing.
Instead, explain to the potential grantee that you partner with an intermediary for your grantmaking and that you are referring them to your grantmaking partner for funding consideration. It may be helpful to share more detail on how the intermediary grantmaking partnership works and reiterate that the intermediary will take on responsibility for the grant if awarded.
2. Don’t sign a grant agreement or partnership agreement with the potential grantee.
When working with an intermediary, your organization should not need to sign an agreement with the potential grantee you refer for funding. If the project you hope to fund requires a partnership agreement between the grantee and your organization, have a conversation with your intermediary grantmaker before referring the grant to determine whether an alternative funding structure is more appropriate.
3. Reinforce that the intermediary grantmaker takes responsibility for the grant and should be the grantee’s main point of contact during the course of the grant project.
It’s natural that a grantee you refer to an intermediary might reach out to you to share updates on their work or ask questions about their grant agreement. In these cases, it’s important to redirect questions or concerns to the intermediary so that they can respond accordingly and work with the grantee to adjust their grant terms if needed. Approving grant changes might interfere with the intermediary’s ability to effectively manage the grant and could be seen as a form of earmarking.
4. If announcing the grant publicly, refer to the grant as one made in partnership with the intermediary grantmaker.
If you choose to share news of the grant, it is important to use language that correctly describes the intermediary grantmaker’s role in the process. Consider using language like the following, which situates the intermediary partner as the grantmaker when announcing the grant publicly:
- “[Grantee] has received a [Intermediary Grantmaker] grant made in partnership with [Your Company or Foundation].”
- “With support from [Your Company or Foundation], [Intermediary Grantmaker] awarded a grant to [Grantee].”
- “[Grantee] was identified as a potential [Intermediary Grantmaker] grantee in partnership with [Your Company or Foundation].”
Grantmaking can be complex, but GlobalGiving is here to help. Ready to learn more about how an intermediary grantmaker can support your giving goals? Find more about GlobalGiving’s grantmaking services.
Featured Photo: Online database for 100 Thai Children's Homes
by Family Connection Foundation