Private Foundations: Change in Excise Tax Rate
- Jan 14, 2020
On Friday, December 20, 2019, President Trump signed into law the 2020 spending bill. The spending bill includes a provision applicable to private foundations that changes the current excise tax rate from a two-tiered structure to a single flat-tax rate. Currently, a private foundation is either subject to a 1% or 2% excise tax rate on net investment income based on a calculation of their current year qualifying distributions compared to a five-year average distributable amount calculation that incorporates the previous five years qualifying distributions and noncharitable-use assets. The two-tiered structure has now been revised and simplified to a single flat-tax rate of 1.39% on net investment income.
A single flat-tax rate enables private foundations to make more accurate estimated payments throughout the year. Similarly, this eliminates the cost benefit analysis many foundations faced with respect to front-loading grant making in order to qualify for a reduced tax. Foundations that were qualifying for the 1% tax may want to update their forecasts and budgets to allow for the new 1.39% tax. While this may negatively affect certain foundations’ bottom line, over time it should have a smoothing effect on that particular budget line item.
This change is effective for tax years beginning after December 20, 2019.
What's on Your Mind?
Timothy Schroeder is a Partner in the firm's Not-for-Profit Services Group with expertise in audits of financial statements and employee benefit plans, including the preparation of Form 990.
Start a conversation with Timothy
Explore More Insights
UBTI Exposure from Equity and Debt Investments by Real Estate Private Equity FundsRead More
Receive the latest business insights, analysis, and perspectives from EisnerAmper professionals.