A post to Exponent Philanthropy's blog

New Legislation Impacting Private Foundations

As we enter the new year and decade, I want to call your attention to an important piece of legislation passed by Congress and signed into law by the President in the closing days of 2019 that has significant implications for those of us in the world of private foundations.

The “Further Consolidated Appropriations Act, 2020” also known as H.R. 1865 became law on December 20, 2019. Within this act are two important provisions of which you need to be aware:

  • The simplification of the excise tax on net investment income; and
  • The retroactive repeal of the unrelated business income tax on qualified transportation fringe benefits.

Excise Tax Simplification

As you well know, private foundations are currently required to pay a 2% excise tax on net investment income. If certain distribution requirements are met, the tax can be reduced to 1%. Beginning with the fiscal 2020 tax year, the excise tax rate has been set at a flat 1.39% regardless of your distributions. In practice, this means some foundations will pay more and some less, although adjusting your grants to qualify for a lower rate will no longer be necessary.

Exponent Philanthropy Board Vice Chair and Treasurer of the McCaddin-McQuirk Foundation Tom Blaney, who is also a CPA specializing in foundations and nonprofits, sees this as a major change. “The flattening of the excise tax is something that has been discussed for years. By having one rate of 1.39%, foundations can concentrate on grant distributions, without a tax consideration, in pursuit of their philanthropic goals,” he shared.

Qualified Transportation Fringe Benefits Repeal

The unrelated business income tax, or UBIT, on qualified transportation fringe benefits, has been repealed retroactive to the original date of enactment (December 2017). If this affected your foundation, you may want to file amended 990-T returns to claim a refund for taxes paid or incurred after December 31, 2017.

These items, as well as a review of the entire Form 990-PF, will be discussed at our annual 990-PF Tax Seminar in Houston on January 21.

All of us at Exponent Philanthropy are here to help you in your philanthropic work. We will keep you apprised of future developments and, as always, are only a phone call or email away.

May the new year bring you success in all you do, and thank you for letting us be part of your team.

Henry Berman became Exponent Philanthropy’s CEO in 2011, previously serving as acting CEO, board member, and committee member. Through his experience as a foundation co-trustee and Exponent Philanthropy member since 2003, he brings a firsthand understanding of the needs of members to his role.

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