What Happened?

On Friday, December 20, 2019, President Trump signed a $1.4 trillion spending package that included simplification of the taxes paid by private foundations. Unlike public charities, private foundations are subject to an excise tax on their net investment income. Prior to Friday’s change in the law, private foundations paid the investment tax in two tiers. The first tier tax was 2% of net investment income. The 2% tax could be reduced to 1% if the private foundation met certain distribution requirements during a five-year rolling average measurement period. Under the new law, private foundations will have a single-tier investment excise tax of 1.39% of net investment income. This change is intended to simplify the tax calculation and reporting requirements for private foundations.

What Should Private Foundations Do Now?

The change in the private foundation excise tax is effective for taxable years beginning after December 20, 2019. So, private foundations with a calendar year ending December 31, 2019, will enjoy the simpler calculation and (for most private foundations) lower rate right away.