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Excise Tax for Foundations & UBIT

January 03, 2020 11:13 AM | Cynthia Pritchard (Administrator)

Advocacy Update 2020

The “Further Consolidated Appropriations Act, 2020” also known at H.R. 1865 became law on December 20, 2019. Within this act are two important provisions of which you need to be aware:

  • The simplification of the excise tax on net investment income; and
  • The retroactive repeal of the unrelated business income tax on qualified transportation fringe benefits.

Excise Tax Simplification

As you well know, private foundations are currently required to pay a 2% excise tax on net investment income. If certain distribution requirements are met, the tax can be reduced to 1%. Beginning with the fiscal 2020 tax year, the excise tax rate has been set at a flat 1.39% regardless of your distributions. In practice, this means some foundations will pay more and some less, although adjusting your grants to qualify for a lower rate will no longer be necessary.

A CPA specializing in foundations and nonprofits, sees this as a major change. “The flattening of the excise tax is something that has been discussed for years. By having one rate of 1.39%, foundations can concentrate on grant distributions, without a tax consideration, in pursuit of their philanthropic goals,”

Qualified Transportation Fringe Benefits Repeal

The unrelated business income tax, or UBIT, on qualified transportation fringe benefits, has been repealed retroactive to the original date of enactment (December 2017). If this affected your foundation, you may want to file amended 990T returns to claim a refund for taxes paid or incurred after December 31, 2017.


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