HR 4090 was introduced to the US House last week.  It proposes reducing the current two tier excise tax on private foundations (1% or 2%) down to a single 1.32% flat tax rate.  Someone somehow calculated 1.32% as the “revenue neutral” rate for the Treasury.   The bill as currently worded would become effective for tax years beginning after 12/31/09 meaning that the 2009 tax year will be the final year of the 1% rate.  This is a change that has been talked about for some time and there is no known opposition from any front to getting this passed by year end.

The determination between 1% and 2% under the current rules is a fairly complex formula which compares the current year’s rate of (cash basis) grant-making as a percentage of available assets with the average over the past five years.  If the current rate is higher, the 1% rate is used.

In anticipation of the change, private foundation managers may want to think about accelerating their grant schedule into 2009 in order to take advantage of the final year of the 1% rate.  This is especially true if there are large capital gains or other investment income which will be taxed for the 2009 tax year.   Remember, this is a cash basis calculation meaning that the grant check must be cut and sent out to count as a distribution.

If you have any questions or would like more information, please contact:

Pete Kennedy

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