Excise Tax
Update
As of June 18, 2010 - Last week, Senator Chuck Schumer (D-NY) tried unsuccessfully to add his legislation to flatten the PF excise tax rate to 1.39% to the Tax Extenders bill being debated by the full Senate. What was the stumbling block? As the Chronicle of Philanthropy reports, Senator Charles Grassley (R-IA) submitted a letter calling on the Council on Foundations (COF) to provide additional data about the need for the legislation and its impact on foundation grantmaking. Specifically, Senator Grassley questioned whether this legislation would actually result in charities getting more funding, saying “[f]lattening the rate without mandating that the tax savings be paid out seems like it’s rewarding those who just do the minimum while hurting those who go above and beyond what’s required.”
COF responded quickly, but the inquiry by Senator Grassley likely precludes Senator Schumer’s legislation from being ultimately added to the tax extenders bill. We expect Senator Schumer to continue to try and add this legislation to future tax bills.
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Charitable tax deduction is back on the chopping block
The President released his FY 2011 Budget this morning. As part of this new budget, as we expected, President Obama again proposed to limit the itemized deduction, including the charitable deduction. The proposal would limit those who earn over $200,000 (singles) and $250,000 (couples) annually to a 28% itemized deduction cap (versus the 33% and 35% rates currently applied to these taxpayers). Unlike last year, however, the funds raised from this proposal would go toward reducing the deficit; last year, the revenue raised from the limitation was set aside for health care reform efforts.
ACR will be carefully monitoring these issues in the coming weeks. While the President’s Budget proposal does not carry the force of law, it does provide a blueprint for Congress to consider when they put together their own budget in the next few months.
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Ways & Means Committee introduces legislation to create a flat 1.32 % excise tax for private foundations
Late Tuesday night (November 17), members of the House introduced private foundation excise tax simplification legislation HR 4090 (see attached). This bill would remove the current two-tiered excise tax imposed on private foundations and replace it with a single rate of 1.32 percent that would apply to five taxable years beginning after December 31, 2009.
The difference between this bill and the Senate version introduced earlier this year (S. 676) by Senator Chuck Schumer (D-NY, Co-Chair of Senate Philanthropy Caucus) is that the 1.32 percent rate would be a temporary provision set to expire in 2015. Additionally, the House bill calls for a study by the Treasury Department by 2013 to examine the effect of the rate change on grant making by private foundations.
ACR believes this legislation is a positive step forward. However, debate lingers on whether both of these bills would be considered “revenue neutral” by the official congressional cost estimators, the Joint Committee on Taxation. If not, the flat rate could increase beyond 1.32 percent which is a point of concern for many foundations as this would actually represent an increase in the excise tax.
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Further Reading
