A. Prior Law: Reductions in Section

(1) For tax years beginning January 1, 1985, through December4 20, 2019, the

excise tax was 2% of net investment income, but was reduced to 1% in certain cases. The reduction in tax to 1% was for private foundations meeting certain distribution requirements of prior Section 4940(e).

(2) The Deficit Reduction Act of 1984, as amended by the Tax Reform Act of 1986,

added Section 4940(e) which, effective for taxable years beginning after December 31, 1984, reduces the excise tax on net investment income of a private foundation from 2% to 1% if the amount of the qualifying distributions made by the foundation during such taxable year equals or exceeds the sum of:

a. An amount equal to the foundation’s assets for such taxable year multiplied

by the average percentage payout for the base period; plus

b. 1% of the foundation’s net investment income for such year. In addition, the

rate reduction is not available if the foundation was liable for tax under Section 4942 with respect to any year in the base period.