Excise tax news

For many years as Connecticut and other foundation delegations participated in Foundations on the Hill, changing the excise tax on private foundations to a flat rate has been a key topic of discussion. Foundations have seen the current two-tiered rate as a deterrent to providing more support in times of disaster, crisis, or great need.

However, it was always made clear that the only acceptable flat rate would be one that is revenue neutral.

To explore this further, our colleagues at the Council of Michigan Foundations, with financial support from the Charles Stewart Mott Foundation, commissioned Cambridge Associates to prepare a new report to determine a revenue neutral number for the excise tax.

The report, National Analysis of Federal Excise Tax on Capital Gains, released on September 12, finds a flat rate of 1.32% would be revenue neutral. This number is based on the review of five years of foundation IRS filings for years 2000-2004 and would provide consistent revenue to the federal treasury that the current formula of 1-to-2 percent now provides.

The report also confirms that simplifying the excise tax will greatly reduce the administrative burden on private foundations trying to determine the appropriate tax to pay and also eliminate penalties for foundations giving more than the required five percent payout.

You can download the report here.

We expect this to be a central issue on the agenda for Congress in 2009, and we’ll be sure to keep you informed on the follow up and reactions to the report. Meanwhile, if you have comments, please share then with us by emailing nroberts@ctphilanthropy.org.