Article 15-A provides rules under which a resident of one Contracting State (and, in the

case of the United States, a U.S. citizen) may make a gift to a charitable organization in the other State, which will be treated for tax purposes, by the State of residence (or citizenship in the case of the United States) as a charitable contribution.

Paragraph (1) deals with the U.S. tax treatment of gifts by U.S. citizens or residents to Israeli charities. It provides that if a U.S. citizen or resident makes a contribution to an organization created or organized under the laws of Israel, that contribution will be treated as a charitable contribution for U.S. tax purposes, for the taxable year in which the gift is made, if and to the extent that the contribution would have been so treated if the organization had been created or organized under the laws of the United States. This rule applies, however, only to contributions which do not exceed twenty-five percent of the contributor's taxable income (if a corporation) or adjusted gross income (if an individual) for the year from Israeli sources.

Paragraph 2 applies, mutatis mutandis, to a gift by an Israeli resident to an American organization.

The Article determines whether any particular gift is to be treated as a charitable contribution. Whether, or the extent to which a deduction (or, in the case of Israel, a credit) is to be allowed by the country of residence for the contribution continues to be governed by the limitations in the taxation laws of that Contracting State. For example, assume a U.S. resident with $50,000 of adjusted gross income, $10,000 of which is from Israeli sources. His contributions to U.S. charitable organizations total $25,000, and he contributes $5,000 to

qualifying Israeli organizations. Assume, further, that all the contributions qualify under Code section 170(b)(l)(A) and are, therefore, deductible up to fifty percent of adjusted gross income. His charitable contributions, under paragraph (1) of the Article, would be $27,500--the full $25,000 of contributions to U.S. organizations and $2,500 (twenty-five percent of $10,000) of contributions to Israeli charities. His limit for current year deductions under U.S. law is $25,000. Thus, he may deduct $25,000 in the current year and carry over $2,500 for future years. Once a contribution to an Israeli charitable organization qualifies as a charitable contribution it becomes indistinguishable from other charitable contributions. There is no need, therefore, in the example above, to determine whether the carryover of excess contributions reflects contributions to Israeli or American charities. Thus, even if the contributor has no Israeli source income in future years, his right to use the carryover is not affected.

In notes exchanged at the time of the signing of the treaty, it was agreed that an effort would be made to develop procedures to simplify the determination by one Contracting State that an organization in the other Contracting State is eligible to receive charitable contributions from residents of the first-mentioned State. The competent authorities of each Contracting State will review the procedures and requirements of the other Contracting State for certifying an organization of that other State as eligible to receive charitable contributions. If the competent authorities find that the procedures do not differ substantially as between the two Contracting States, it is contemplated that the authorities of each State will accept certification by the other and will not require recipient organizations to qualify separately in both States.