Self-Defense Communications Regarding the Section 4940 Excise Tax on Net Investment Income

Self-Defense Exception: A legislative proposal to modify the private foundation excise tax on net investment income under IRC section 4940 would qualify as a self-defense issue, because it affects a private foundation’s duties. Private foundations may therefore communicate with the legislature, its committees and subcommittees, or individual members or their staff, as well as representatives of the executive branch who are involved in the legislative process, without having those actions result in a taxable expenditure.

Additional Information: Internal Revenue Code section 4945(e) provides, in part, that that the term “taxable expenditure” means any amount paid or incurred by a private foundation for “any attempt to influence legislation through communication with any member or employee of a legislative body, or with any other government official or employee who may participate in the formulation of the legislation.” However it also provides that the term “taxable expenditure” does not include “any amount paid or incurred in connection with an appearance before, or communication to, any legislative body with respect to a possible decision of such body which might affect the existence of the private foundation, its powers and duties, its tax-exempt status, or the deductibility of contributions to such foundation.” The activities permitted under this exception are commonly referred to as “self-defense communications.”