Private Foundations Gain a Small Tax Break on Investment Income

The SECURE Act stole all of the end of year thunder regarding changes in federal taxes. However, other changes were enacted. One of these was the repeal of Code Section 4940(e).

Code Section 4940 previously imposed a 2% excise tax on the investment income of private foundations. Section 4940(e) reduced that tax to 1% for foundations that increased their qualifying distributions over the average for the prior 5 years.

So as to simplify this small corner of the tax universe, this 2%/1% arrangement is now history. In its place the Taxpayer Certainty and Disaster Tax Relief Act of 2019 provides for a flat 1.39% rate.