Potential Change to the Private Foundation Excise Tax Rate

On December 17, the House of Representatives passed the Taxpayer Certainty and Disaster Tax Relief Act of 2019. The bill includes a provision to eliminate the two-tier excise tax that private foundations pay on net investment income and replace it with a flat 1.39% rate. It is expected to be passed by the Senate and signed into law before the end of the year. The new rate would be effective as of the date the new law is enacted.

Each year, many private foundations spend a significant amount of time working through the five-year calculation to determine what qualifying distributions will be required for them to be at the 1% tax rate, versus the 2% rate. If enacted, private foundations will no longer have to go through the calculation and will pay net investment income tax at a flat 1.39%. To those organizations that have been paying at the 1% rate, this will be a slight increase to their tax bills, but for many others the simplification has been long-awaited. The new law would also serve to eliminate the need to make last-minute grants to reduce the tax rate.

If you have any questions on the excise tax changes, please contact any of our exempt organization experts. We’ll post further updates as they become available.