Private foundations have long operated under a steady—if often overlooked—tax framework, but a new proposal in the “One Big Beautiful Bill” under consideration in the House could prompt significant recalibration of your investment‑income planning. Below, we unpack the proposed excise‑tax changes, trace their historical context, and outline what comes next for foundations weighing their future strategies.
Proposed Tiered Excise‑Tax Rates
Under Section 112022 of the current House draft, net investment income of private foundations would be subject to a tiered tax rate based on asset size at year‑end:
- 1.39% for foundations with assets under $50 million
- 2.78% for assets $50 million to under $250 million
- 5% for assets $250 million to under $5 billion
- 10% for assets $5 billion or more
Importantly, these rates apply only to net investment income; the underlying excise tax on endowment returns remains intact. Asset values simply determine which rate bracket applies. In valuing your holdings, remember that liabilities do not reduce fair‑market value for this purpose.
A Brief History of IRC §4940(a) Rates
This excise tax was introduced in 1969 at a straight 4%. It was trimmed to 2% in 1978, and from 1985 through 2019 fluctuated annually (either 1% or 2%) based on a foundation’s qualified charitable distributions. Since 2020, a uniform 1.39% rate has applied across the board. The new proposal would reinstate graduated tiers in a way that is unprecedented for private foundations.
Effective Date and Legislative Outlook
On May 14, 2025, the House Ways and Means Committee approved the provision on a party-line vote following a 17-hour session, during which several Democratic amendments were blocked by Committee Republicans. The House passed the bill on May 21, and it has now moved to the Senate for consideration as part of the broader budget reconciliation process. No final vote date has been set. If approved, the House and Senate must reconcile differences before sending the unified bill to the President. Should Congress enact this language, the revised rates would take effect for taxable years beginning after the date of enactment.
What Foundations Should Be Doing Now
Until the final legislative text is settled, private foundations should:
- Review current asset levels
Identify whether your year‑end net‑asset position could push you into a higher excise‑tax bracket. - Stay informed
Track the bill’s movement through the House floor, Senate negotiations, and conference committee.
Contact a qualified tax advisor to discuss your unique situation and planning options and to understand how these proposed tiered rates might affect your foundation’s financial planning and charitable goals.
Dan Doiron has been in public accounting since his college internship with ARB in 1986. He has been a Principal since 1996 and works extensively with all types of clients to solve their compliance and tax planning issues. Dan was the May 1987 State of Maine Gold Medalist for earning the highest scores on all four parts of the CPA Examination. He is the Practice Leader of both ARB’s Business Tax Services Team and ARB’s Private Client Advisory Services Team.
