Drafting Oversight in Charitable Giving Act Affects Private Foundation Excise Tax
A drafting oversight in The Charitable Giving Act (H.R. 3908), introduced in the House by Representatives Roy Blunt (R-MO) and Harold Ford, Jr. (D-TN), affects the excise tax on net investment income paid by private foundations.
Currently, private foundations are subject to a 2 percent tax on their net investment income. However, the tax is reduced to 1 percent in any year in which the foundation’s percentage of distributions for charitable purposes exceeds the average percentage of its distributions over the five preceding taxable years. The Charitable Giving Act of 2005, as introduced, includes language that effectively eliminates the current two-tier rate structure and sets the private foundation excise tax rate at 2 percent regardless of the foundation’s distribution level.
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