Open Comment Period: Simplifying the Excise Tax on Private Foundations

Last year, the Philanthropy New York board approved a formal process for our organization to take an official position on pressing policy concerns, and earlier this year we formed a Public Policy Committee to advise staff on how to proceed on such issues. We have been tracking several issues and one in particular has advanced to the point where the Public Policy Committee has recommended making an official statement.

This is the point in the process where we open the discussion to all Philanthropy New York members, which is the penultimate step before the Board officially endorses or declines to endorse the position.

The Public Policy Committee has recommended making an official statement supporting federal legislation that will simplify the excise tax on private foundations.

Click here to read a full issue guide on this topic.

This is our full official statement on simplifying the excise tax on private foundations:

United States Senate and House legislative proposals have been introduced that would amend the IRS Code of 1986 to simplify the excise tax on the investment income that private foundations pay by removing the current two-tiered tax and replacing it with one flat tax rate. The proposals set this flat rate at 1.39 percent, which was designed to be revenue neutral, but according to the Joint Committee on Taxation in the 112th Congress would slightly raise tax revenues by $86 million over ten years.

Philanthropy New York supports simplifying the excise tax on private foundations because:

  • The current two-tier system serves as a disincentive to increased giving, especially in times of crisis or economic turmoil. It creates a tax-induced incentive to reduce contributions in difficult times because high distribution makes it more difficult to qualify for the lower rate during the next 5 years. In the current scenario, when a foundation’s assets are reduced, they subject themselves to higher tax rates in future years unless they also reduce the dollar amount of their giving.
  • A flat excise tax will simplify tax planning, especially for smaller foundations that may lack resources for complex financial planning.
  • Simplifying the rate will reduce monitoring and enforcement costs to the Treasury Department, increasing efficiency for foundations and government alike.

The comment period is five business days; please use the comments section below to weigh in on Philanthropy New York’s official statement.

If you have any questions about Philanthropy New York’s public policy work, please do not hesitate to contact our Vice President of Communications & Public Policy, Michael Hamill Remaley, at or 212-717-0699 x222.

2 Responses to “Open Comment Period: Simplifying the Excise Tax on Private Foundations”

  1. 1 Victor De Luca August 2, 2012 at 9:02 am

    In general I support PNY adopting policy statements. I think the process you set up allows for input from the members before making anything final.

    On the tax issue, I favor the one rate approach. Over the years, the Noyes Foundation has usually only had to pay 1 percent but there have been years when it was 2 percent. I think one rate (1.39 percent) is a simplier system and revenue neutral.

    Go for it!

  2. 2 Paul L. Joskow August 1, 2012 at 4:05 pm

    I can only comment for myself since, especially in the summer, there is not adequate time to discuss this with my staff or trustees. In theory, the proposed policy makes a lot of sense for the reasons specified. In practice, I am concerned that it will be counterproductive in the current political and economic environment. I think that it may be counterproductive because it will draw attention to the level of the excise tax rate that is applied to private foundations and the inclusion of certain management expenses in the calculation of charitable expenditures (an issue that was a hot button item when the excise tax was first introduced). At this point in time, as Congress is seeking new sources of revenue, opening up this issue may very well lead to a uniform tax rate, but it could be 5% or 10% or higher. So far, the level of the excise tax rate for private foundations has not received any serious attention in Congress. If you shine a light on it now you may get a uniform but higher rate. I don’t think that it’s worth taking this risk and I am opposed to PNY adopting the policy statement circulated. There will be better less risky times to promote the uniform rate without running the risk of increasing the excise tax rate for all of us.

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