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Private Foundation Excise Tax Proposed Change

February 2011

The recently released Federal 2012 Revenue Proposal set forth a provision to change the excise tax private foundations pay on their net investment income to a flat 1.35%.

As you are aware, private foundations that are exempt from federal income tax generally are subject to a two percent excise tax on their net investment income. The excise tax rate is reduced to one percent in any year in which the foundation’s distributions for charitable purposes exceed the average level of the foundation’s charitable distributions over the five preceding taxable years (with certain adjustments).

Because amounts paid by foundations in excise tax generally reduce the funds available for distribution to charitable beneficiaries, the Revenue Proposal would eliminate the “two-tier” structure of this excise tax and theoretically would ensure that a private foundation’s grantees do not suffer adverse consequences if the foundation increases its grant-making in a particular year to respond to charitable needs (thereby increasing their five-year average). Such a change would also simplify both the calculation of the excise tax and charitable distribution planning for private foundations.

The proposal would be effective for taxable years beginning after the date of enactment.


For questions or more information, contact a Grant Thornton professional listed in this alert.

This e-mail supports Grant Thornton LLP's marketing of professional services, and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax adviser to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this e-mail may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this e-mail is not intended by Grant Thornton to be used and cannot be used by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

For more information

Dan Romano
Partner-in-charge, National Not-for-Profit Tax Practice
T 212.542.9609

Joe Detrane
Partner, Not-for-Profit Tax Practice


Rob Byrd
Partner, Not-for-Profit Tax Practice
T 704.632.6785

Frank Giardini
Principal, Not-for-Profit Tax Practice
T 215.656.3060

Ann Petrie
Partner, Not-for-Profit Tax Practice
T 414.277.1595

Dawn Olivardia
Partner, Not-for-Profit Tax Practice
T 407.481.5120

Laura Kenney
Executive Director, Not-for-Profit Tax Practice
T 617.848.4985

Kimberly Schrant
Senior Manager, Not-for-Profit Tax Practice
T 316.383.3229



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