Current law requires private foundations to pay an annual excise tax equal to 2% of their net investment income. However, the tax is reduced to 1% in any year in which a foundation’s distributions exceeds the average payout rate of the foundation, calculated over the preceding five years.
This two-tiered tax provision is simply a disincentive for foundations to increase the overall size of grants in any one year — due to disasters, recessions or compelling projects — because the higher level of giving binds the foundation to higher levels of giving in the future. And if the higher levels are unsustainable because, for example, of the foundation’s weaker investment returns, the foundation may not qualify for the lower 1% tax rate.
Moreover, many foundations hire staff and outside auditors to manage the level and timing of their grantmaking to avoid the higher level of tax so as to preserve their funds for charities’ needs. These foundations hire experts to ensure compliance and accurately estimate the fair market value of assets throughout the applicable tax year. One level of tax for all private foundations would eliminate this uncertainty and complexity.
ACR supports establishing a flat rate of 1 percent, which will eliminate the perverse incentive that often deters foundations from increasing grantmaking in times of greater need.
11/13/2017 Universal Charitable Deduction, CHARITY Act Offered as Amendments to Senate Tax Reform Bill
WASHINGTON, D.C.- Two amendments aimed at protecting and expanding charitable giving will be considered by the Senate Finance Committee this week during the markup of the Senate tax reform bill, the Tax Cuts and Jobs Act. The first is an amendment from Sens. Debbie Stabenow (D-MI) and Ron Wyden (D-OR) that seeks to prevent almost 95 percent of Americans from being denied any tax benefits for giving to charity by expanding the charitable deduction to all Americans.
11/03/2017 What’s in the Tax Bill?
Yesterday, House Republicans issued their tax reform bill, H.R. 1, the Tax Cuts and Jobs Act. As was anticipated, the tax reform bill doubles the standard deduction, reducing the number of itemizers from one-third of Americans to about five percent. According to IRS data, this would remove the tax incentive for an estimated $95 billion of annual charitable giving and could reduce giving by as much as $13 billion. Charities have rallied behind a universal charitable deduction as a solution to protect against the unintended consequences of an expanded standard deduction. However, the bill released this week does not expand the charitable deduction. You can read our statement on the bill here.
06/13/2017 CHARITY Act Introduced in US Senate
WASHINGTON, D.C.— Legislation that would protect and expand charitable giving, particularly for community charities, was introduced in the U.S. Senate today by Sens. John Thune (R-SD), Bob Casey (D-PA), Pat Roberts (R-KS) and Ron Wyden (D-OR). S. 1343 – the Charities Helping Americans Regularly Throughout the Year Act, or CHARITY Act – includes three provisions strongly supported by the Alliance for Charitable Reform (ACR)
To see previous updates about the private foundation excise tax, click here.