Private Foundation Excise Taxes on Undistributed Income

Of the 48,440 non-operating private foundations analyzed, only 1,034 (2.1%) had to pay an excise tax on undistributed income from the previous year
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To help ensure private foundations carry out their charitable purposes, the IRS requires that most private foundations spend a certain amount of their income each year on charitable purposes, or pay a 30% excise tax on the income they should have distributed but didn't. How many private foundations each year owe this excise tax on undistributed income?

Of the 48,440 non-operating private foundations we have data on (and that gave away any money last year), only 1,034 (2.1%) had to pay an excise tax on undistributed income from the previous year. In contrast, 34,252 (70.7%) of non-operating private foundations gave away more money than the IRS minimally requires.

Which private foundations owe excise taxes on undistributed income?

Of the 48,440 non-operating private foundations we analyzed, 1,034 (2.1%) had to pay an excise tax on undistributed income from the previous year. The undistributed income subject to tax was on average $23,061, but ranged from $2 to $1,038,069, with a median of $4,801. Here's a breakdown of the types of grantees these private foundations gave to, the years they were formed, and how much they held in investable assets:

Types of grant recipients that private foundations owing excise taxes give to

Grantee typeNumber of nonprofits
Religious organizations
 
90
 
Universities
 
74
 
Private foundations
 
68
 
Animal shelters
 
65
 
School foundations
 
59
 
International humanitarian organizations
 
58
 
Public foundations
 
57
 
Christian organizations
 
57
 
Homeless shelters
 
53
 
High schools
 
50
 
Jewish organizations
 
50
 
Food banks
 
48
 
Historical societies
 
47
 
Specialty hospitals
 
46
 
Community foundations
 
46
 

Investable asset sizes of private foundations that owe excise taxes

Investable assetsNumber of nonprofits
< $100k
 
265
 
$100k to $500k
 
353
 
$500k to $1M
 
160
 
$1M to $5M
 
227
 
$5M to $10M
 
30
 
$10M+
 
36
 

Which private foundations paid excess distributions?

Almost 35,000 non-operating private foundations -- 70.7% -- gave more money away (paid excess distributions in IRS-speak) this past year than they were required to by the IRS. This is a good thing, and the IRS does not punish it in any way. The excess distributions were on average $1,297,446, but ranged from $2 to $2,145,238,015, with a median of $113,917. Here's a breakdown of the characteristics of these private foundations:

Types of grant recipients that private foundations that paid excess distributions

Grantee typeNumber of nonprofits
Universities
 
5,092
 
Religious organizations
 
4,341
 
Animal shelters
 
3,938
 
Private foundations
 
3,923
 
School foundations
 
3,673
 
High schools
 
3,607
 
International humanitarian organizations
 
3,588
 
Food banks
 
3,411
 
Community foundations
 
3,370
 
Christian organizations
 
3,313
 
Public foundations
 
3,180
 
Jewish organizations
 
3,049
 
Homeless shelters
 
2,976
 
Multiservice human service organizations
 
2,764
 
Art museums
 
2,641
 

Investable asset sizes of private foundations that paid excess distributions

Nonprofit typeInvestable assets
< $100k
 
7,597
 
$100k to $500k
 
9,437
 
$500k to $1M
 
4,993
 
$1M to $5M
 
8,242
 
$5M to $10M
 
1,760
 
$10M+
 
2,223
 

Are excise taxes on undistributed income common?

Excise taxes on undistributed income are not common, with only about 2% of private foundations subject to them each year. Furthermore, the amount of undistributed income subject to the taxes is not much compared to the size of assets held by the foundations. Far more common are private foundations giving away more money than legally required by law, with the vast majority of private foundations doing this.

Methodology

Cause IQ digitizes and cleans electronic and paper / scanned Form 990s for over 1.7 million IRS-registered tax-exempt organizations. To complete this analysis, we analyzed electronically-filed Form 990-PFs that contained a positive value for Part XI Line 7 (distributable amount). To determine private foundation subject to the excise tax on undistributed income, we used Part XIII Line 6(e). To determine private foundations with excess distributions to be carried over to the next year, we used Part XIII Line 9. A possibility exists that private foundations that file their Form 990-PFs in paper format are more likely to be subject to undistributed income excise taxes than private foundations that electronically file their Form 990-PFs.

Article originally published on October 5, 2020.

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