Tax Changes Affecting Foundations

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 on Foundations supports a strong philanthropic sector that works to achieve the greater good. The Council opposes regulations and legislation that are overly burdensome or would harm the sector’s ability to thrive.

Recent Legislation

Universal Giving Pandemic Response and Recovery Act (S. 618/H.R. 1704)
Summary: Establishes a charitable deduction for non-itemizers equal to one-third of the standard deduction. The bill includes charitable gifts to donor-advised funds (DAFs). 
Council's Action Alert

Securing a Strong Retirement Act (H.R.2954)
Summary: Makes changes to employer-sponsored retirement plans, includes modified version of Legacy IRA Act. 

Legacy IRA Act (H.R.2909/S.243)
Summary: Expanding the IRA CHaritable Rollover to encourage charitable giving by enabling seniors through life-income plans.

Accelerating Charitable Efforts Act (H.R.6596/S.1981)
Summary: Modifies existing rules relating to donor advised funds (“DAFs”), creates an excise tax on sponsoring organizations, and makes certain changes to the rules governing private foundations.
Council's 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