Background

The tax reconciliation package sent to the Senate by the House increases the excise tax on net investment income for private foundations. This provision threatens billions of dollars that private foundations provide to community nonprofits every year via grant-making. This proposal does not impact public charity community foundations, but it is considered a slippery slope that could lead to more widespread taxes on charitable organizations in the future. It would, if enacted, significantly reduce financial resources available to nonprofit organizations to advance their missions at a time when nonprofits are already losing operating dollars due to federal cuts, inflation, and tariffs. Based on analysis conducted by Forefront staff, the higher taxes would likely result in a loss of at least $168.4 million in grant dollars in Illinois (Source: Foundation Directory Online). The new excise tax on net income would be as follows according to asset size: 

• >$5 billion = 10% 
• $250 million to $5 billion = 5% 
• $50 million and $250 million = 2.8% 
• <$50 million = 1.4% (current rate) 

Higher taxes on foundations means fewer dollars going to critical programs in Illinois, and less flexibility for nonprofits to show up in response to crises. Small, local nonprofit organizations rely on private foundations to provide lifesaving investments that help support new moms, provide food, intervene after emergencies like house fires, host after-school programs for youth, and deliver meals to older Americans. Policies that redirect resources away from private foundations, like the increased private foundation excise tax, directly translate to fewer dollars going to soup kitchens, faith-based programs, and disaster response. 

Local money is best kept in our towns and cities to help our friends, families, neighbors, and communities – rather than being diverted to Treasury. Even in times of economic decline, private philanthropy is a steady source of investment in American communities. The growth of foundation endowments during economic upswings helps cushion philanthropy against economic downturns, creating certainty for communities when times are tough. Foundations are always at the forefront of disaster response. In 2020, foundation giving jumped 17%, with philanthropy injecting needed dollars when communities needed them most. Even when foundations lost 20% of their assets during the Great Recession, many foundations increased their payout to make sure suffering Americans could cover their rent, heat, and electric bills. At a time when our communities need it most, Congress must not tie the hands of charitable organizations or limit their resources.

NOTE: Lobbying against an increase to the private foundation excise tax falls within the self-defense exception for private foundations, though be sure to follow your organization’s policies when it comes to lobbying.

Take Action NOW

• Contact your Senator in one or both of these ways:
  1. Use the form to the right on this page to email your Senator. Add a story or data to the form that’s unique to your foundation. For example, state how many more tax dollars you’d pay under the proposed excise tax, or how the tax will negatively impact services and people in your community. 
  2. Call your Senator and use this phone script, which includes specific talking points for both private and community foundation callers.
• After emailing and/or calling your Senator, sign onto COF’s letter opposing these higher excise taxes.
• Finally, share the impact to your grantmaking with COF.

Key Resources

• Joint letter on the harmful impact of increasing the private foundation excise tax
• Philanthropy Roundtable’s statement
• Council on Foundations' (COF) statement