Tax Changes Affecting Foundations

Last updated January 17, 2020

Further Consolidated Appropriations Act, 2020 & Private Foundation Excise Tax

The private foundation excise tax was modified from the historical two-tiered system to a flat rate of 1.39% when H.R. 1865 (116) was 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.

Questions? Contact the Council’s Government Affairs Team govt@cof.org.

Taxpayer Certainty and Disaster Relief Tax Act of 2019

On December 20, 2019, the President signed the Taxpayer Certainty and Disaster Relief Tax Act designed to encourage public support for organizations providing disaster relief. Included among the provisions was a temporary enhanced tax benefit for donors making cash contributions to these charitable organizations. Specifically, the new law eliminates certain limitations that act to cap a taxpayer’s charitable tax deduction if the taxpayer makes a qualified contribution for disaster relief.

Following is a quick primer on what this means for donors:
Normally, individual taxpayers may claim a charitable tax deduction for a cash gift to a public charity up to an amount equal to 60% of the taxpayer’s adjusted gross income (AGI). Any amount that exceeds 60% of AGI may be carried forward for 5 years. Under the new law, this limitation is removed temporarily, and a taxpayer may claim a charitable deduction of up to 100% of AGI for a cash gift to a public charity supporting disaster relief.

To take advantage of the enhanced tax deduction, the following requirements apply:

  1. The contribution must be paid in cash during the period beginning January 1, 2018 and ending on February 18, 2020.
  2. The contribution must be made to a public charity (as opposed to a private foundation).
  3. The contribution must be made specifically for relief efforts in one or more areas for which a major disaster was declared by the President.
  4. The donor must obtain from the charity a contemporaneous written acknowledgment satisfying the normal IRS rules plus confirmation by the charity that the gift was used, or will be used, for relief efforts described in item 3.
  5. Contributions to supporting organizations defined in IRC 509(a)(3), or contributions to establish a donor advised fund, do not qualify for this benefit.

Other charitable deductions claimed by the taxpayer in the tax year will be taken into consideration so the enhanced deduction is allowed only to the extent it does not exceed the excess of AGI over these other charitable income tax deductions allowable under the normal rules. Because the benefit applies to contributions that were made in 2018, a taxpayer may need to file an amended 2018 tax return to claim the enhanced deduction.

Questions? Contact the Council’s Legal Resources Team legal@cof.org.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the most sweeping tax legislation in over three decades was signed into law. The Tax Cuts and Jobs Act had wide ranging affects on foundations, including changes to UBIT and charity-executive compensation.

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