(1) For tax years beginning after December 20, 2019, Section 4940(a) imposes on
each private foundation which is exempt from taxation under Section 501(a) for
the taxable year, with respect to the carrying on of its activities, a tax equal to
1.39% of the net investment income of such foundation for the taxable year.
Note: On December 20, 2019, new legislation was signed that changed the
excise tax rates of net investment income for most domestic tax-exempt private
foundations, including private operating foundations. For tax years beginning
January 1, 1985, through December 20, 2019, the excise tax was 2% of net
investment income, but was reduced to 1% in certain cases (Section 4940(e)).
Effective for tax years beginning after December 20, 2019, Section 4940(a) was
amended to use a single tax rate of 1.39% on net investment income and Section
4940(e) was repealed.
(2) The tax is reported on the form the foundation is required to file under Section
6033 and is paid annually at the time prescribed for filing its annual return
regardless of whether any extension for filing is granted. See Treasury Regulation
(Treas. Reg.) 53.4940-1(a).
(3) Section 4940(b) imposes on each private foundation which is not exempt from
taxation under Section 501(a) for the taxable year, with respect to the carrying on
of its activities, a tax equal to:
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a. The amount (if any) by which the sum of (A) the tax imposed under
subsection (a) (computed as if such subsection applied to such private
foundation for the taxable year), plus (B) the amount of the tax which would
have been imposed under Section 511 for the taxable year if such private
foundation had been exempt from taxation under Section 501(a), exceeds
b. The tax imposed under subtitle A on such private foundation for the taxable
year.
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