Private Foundation Excise Tax

Nonprofit Operations

The Issue

For roughly 50 years, private foundations faced a complicated, two-tiered excise tax on investment income. While designed to reward organizations that increased their grantmaking, the system caused considerable administrative burden for foundations and discouraged them from significantly increasing grantmaking in any particular year. This incentive structure was particularly ill-suited to times of extraordinary need, such as economic crises or natural disasters.

Independent Sector has long supported a simplified 1 percent excise tax rate in order to realign these incentives and free up more resources for communities in need. This policy change would reduce the overall tax burden on private foundations and incur a cost to the federal treasury. However, in 2019, Independent Sector joined with other allied organizations to support a revenue-neutral simplification of the private foundation excise tax at 1.39 percent. This provision passed Congress as part of the Further Consolidated Appropriations Act of 2020 and became Public Law 116-94.

This simplified rate now allows private foundations to spend less time on complex financial calculations and more time meeting community needs.

STATUS

Last Updated: 3/11/2020