Cre8tive Philanthropy

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Investment and innovation in the for-profit social impact community.

Foundation Flat Tax Proposed

Last month Rep. Chuck Schumer, D-N.Y, proposed a 1.39% flat tax on all foundation investment earnings. The offset would be a lower age, from 70 1/2 to 59 1/2,  for the provision that allows $100,000 tax-free transfers from IRA’s to charitable causes. Additionally, private foundations would now qualify for the tax free transfer, whereas they are currently unqualified.

Private foundations are currently subject to up to a 2% tax on investment earnings but are provided exemptions if their charitable giving reaches certain qualifying amounts. The flat tax would require a tax be paid regardless of their donation levels.

The key question: would this legislation suppress the amount of money going to non-foundation charitable causes? If foundations don’t have an incentive (through tax policy) to give at higher levels, will they? Is the proposed flat tax a tax on wealthy citizens’ private foundations or a tax on charities? What is the likely outcome? How will such a policy impact behavior?

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Filed under: Charitable Tax Laws, Foundations, Giving, Philanthropy

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