Update on The UBIT Tax Repeal and the Simplified Private Foundation Excise Tax
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In December 2020, the Further Consolidated Appropriations Act, 2020 (H.R. 1865) was signed into law, ushering in two significant victories for private foundations and the nonprofit sector. H.R. 1865 includes a simplification of the private foundation excise tax rate from a two-tier system to a flat rate. It also applies a retroactive repeal of the UBIT tax on nonprofit transportation benefits. These long-awaited changes will allow private foundations to better focus their funding on meeting community needs.
The simplification of the private foundation excise tax has received strong support from our members and has long been a goal for our sector. Philanthropy California, in collaboration with national, regional, and local partners — including Independent Sector, Alliance for Charitable Reform, Council on Foundations, and United Philanthropy Forum — has advocated diligently for the simplification of the private foundation excise tax to a flat rate of 1.39 percent for several years. By simplifying the tax, private foundations will spend less time managing year-to-year payout to minimize their tax burden and instead focus on serving nonprofit partners by deploying more resources to community-led solutions. The new flat-rate tax went into effect on December 20, 2019.
Additionally, the tax on nonprofits related to transportation benefits (known as unrelated business income tax or the UBIT) was retroactively repealed. A coalition of thousands of nonprofits whose persistent advocacy achieved bipartisan support throughout Congress led the repeal efforts. The IRS recently issued guidance to help nonprofits and foundations secure a refund on the nonprofit transportation benefits tax they paid in 2018 and 2019. Nonprofits interested in claiming a refund can find visit the IRS website to access the full instructions.
On behalf of Philanthropy California, our members, and our partners across the state, we would like to express our gratitude to the bipartisan negotiators, the California Congressional Delegation who supported the legislation, and our coalition of foundation leaders for their work. This effort would not have been possible without the relationships we have built over the last four years with philanthropic leaders from across the state.