Spending act adjusts excise tax rate on certain private foundations’ net investment income

On Dec. 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020, which partly funds the federal government through fiscal year 2020. The act also contains changes to the Internal Revenue Code (IRC) that impact tax-exempt organizations. In addition to repealing the increase in unrelated business taxable income (UBTI) for certain fringe benefits enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA), the spending act also adjusts the excise tax rate imposed on the net investment income (NII) of certain private foundations. 

Previous law

Prior to the new act, IRC Section 4940(a) imposed a 2% excise tax on the NII of tax-exempt private foundations, with a reduced rate of 1% for any taxpayer meeting the distribution requirements provided in Section 4940(e). IRS Form 990-PF, Part V, provided a worksheet to help taxpayers determine whether they qualified for the reduced rate.

New law

The new act decreases the standard rate to 1.39% and eliminates the rule allowing a reduced rate for qualifying taxpayers. The changes are effective for all tax years beginning on or after Dec. 21, 2019.

What does CohnReznick think?

The simplified excise tax on the NII of certain private foundations will result in some taxpayers paying more while others pay less on their next tax return. However, all taxpayers will save the time and cost associated with determining qualification for the lower rate. Further, private foundations can now make distribution decisions without concern over how they will impact their tax rate under IRC Section 4940(e).


Lori Rothe Yokobosky, CPA, MST, Partner, Exempt Organization Tax Services


Thomas Lanning, CPA, Retired Partner/Consultant, Exempt Organization Tax Services


Dan Masciello, Senior, Exempt Organization Tax Services



Get in touch with our specialists

View All Specialists
Lori Yokobosky headshot

Lori Yokobosky

CPA, MST, Partner & Exempt Organizations Tax Services Leader

Looking for the full list of our dedicated professionals here at CohnReznick?



Let’s start a conversation about your company’s strategic goals and vision for the future.

Please fill all required fields*

Please verify your information and check to see if all require fields have been filled in.

Please select job function
Please select job level
Please select country
Please select state
Please select industry
Please select topic

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.