Issue
Each year, Congress and the Department of Treasury considers tax changes that can directly affect tax-exempt organizations including foundations and the broad nonprofit sector.
Council Position
The Council supports a policy environment that ensures philanthropic institutions have the tools, flexibility, and support needed to achieve their missions. While the Council supports appropriate oversight from federal regulatory agencies and policymakers, overly burdensome requirements harm foundations’ ability to meet the needs of communities today and into the future. Research shows the 5 percent payout rate accurately reflects the historic return on assets earned by private foundations. Increasing the payout requirement for private foundations would unnecessarily limit philanthropy’s ability to respond to future crises.
Active Legislation
Charitable Act (S.566) and action alert
Simplification of the Private Foundation Excise Tax
In December 2019, the private foundation excise tax was modified from the historical two-tiered system to a flat rate of 1.39%. when H.R. 1865 (116th Congress) passed on December 20 and took effect upon President’s signature. The legislative language can be found in Division Q, Title II, Section 206 of bill.
Due to the lack of written guidance at this point, the Council got clarification from its tax legislation experts that the reduction applies to taxable years “beginning after the date of enactment” (i.e., taxable years beginning after December 20, 2019). Thus, for a calendar-year foundation, the changes will not impact the 2019 tax year and will take effect in the 2020 tax year because such foundation’s taxable year begins January 1 of any particular year.
If a foundation’s financial year does not coincide with the calendar year, i.e., one whose tax year begins after December 20 but before January 1, it should consult its own financial advisor for how to proceed.
Additional Resources
- Coalition letter expressing concerns with H.R. 8290 and H.R. 8293 (May 2024)
- Senate Finance Committee Testimony (March 2022)
- Coalition letter in support of H.R.2954 (117th Congress)
- Council’s full summary and analysis of the CARES Act of 2020 (Public Law 116-123)
- Council’s full summary and analysis of the Tax Cuts and Jobs Act (Public Law 115-97).
- IRS Resource: Tax Reform Provisions that Affect Retirement Plans, Tax Exempt Organizations and Government
