Excise Tax Rate for Private Foundations Simplified
On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020 (Act) into law, which included a provision that modifies the excise tax structure applicable to private foundations.
As a result of the Act, Internal Revenue Code Section 4940(a) was amended and §4940(e) was repealed to replace the current two-tiered excise tax system with a flat 1.39 percent tax rate. Under previous law, private foundations were subject to a 2 percent excise tax on net investment income, which could be reduced to 1 percent if the foundation made qualifying distributions that exceeded certain historical thresholds. The formula to calculate the reduced tax rate was complicated and contributed to the overall administrative burden private foundations faced when calculating their tax estimates for the year.
The new flat 1.39 percent tax rate is effective for tax years beginning after December 20, 2019. For more information, contact your BKD Trusted Advisor™ or use the Contact Us form below.