The philanthropic sector is keeping a close eye on a new tax bill that was introduced on Monday, May 12, by the House Ways and Means Committee. If the bill passes in its current form, it will impact certain private foundations, which will have a downstream effect on charitable giving across the US. Here is a quick recap of what private foundations should know now.
New Graduated Excise Tax
Private foundations would face an escalating tax based on their size, differing from the current flat excise tax rate of 1.39% for all foundations. The table below shows the proposed tiers.
Section 112022 of the Bill Provides As Follows:
| Foundation’s Asset Value | Tax Rate |
| Up to $50 million | 1.39% (no change) |
| $50 million to less than $250 million | 2.78% |
| $250 million to less than $5 billion | 5.00% |
| $5 billion and up | 10.00% |
Assets in this case would be defined as the aggregate fair market value of all assets of a private foundation, determined at the close of a taxable year without reduction for any liabilities. The assets of a foundation will be aggregated with the assets of certain related organization, although the text of the bill would prevent double-counting of the same assets for more than one foundation. For example, if a large foundation were to split up into multiple foundations to “game” the tax rate, the asset balances of all related foundations would be aggregated for purposes of determining the applicable tax rate.
For this purpose, a “related organization” means an organization, regardless of its tax status, that controls or is controlled by the foundation, or that is controlled by one or more persons that also control the foundation. However, the assets of a related organization would not be aggregated with those of the foundation if the related organization’s assets are not intended or available for the use or benefit of the private foundation.
The effective date in the bill is the tax year beginning after that date of the enactment of the bill.
What Else Is Included in the Bill That Could Impact Foundations?
Other measures included in this tax bill that could have implications on private foundations’ activities are:
- Expanding the application of the tax on excess compensation paid by tax-exempt and certain related organizations.
- The definition of “covered employee” that would be considered for the 21% excess compensation tax would be expanded to include “any employee (including any former employee) of an applicable tax-exempt organization,” not just the five highest-paid employees. The excess compensation threshold remains unchanged at $1 million or more in annual remuneration.
- Termination of tax-exempt status of terrorist-supporting organizations.
- The tax bill gives the Secretary of the Treasury the ability to designate an organization as a “terrorist-supporting organization” and rescind tax-exempt status.
- The House Rules Committee struck this provision from the bill on May 19, 2025.
- Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed.
- Certain purchases of employee-owned stock are disregarded for purposes of foundation tax on excess business holdings.
What’s the Typical Lifecycle for This Type of Bill?
As with all bills, there are several steps that include introduction, committee review, floor debate and voting. If it passes in the House, it will be sent to the Senate where the process is repeated. If the two chambers produce different versions of the bill, it will require committee action to hammer out a compromise before final approval and presidential action. This process can take weeks or months to accomplish.
In our experience, complicated bills like this one generally go through many revisions before being passed— so, while there’s a possibility it could pass by year-end, there’s a reasonable chance it’s likely to be markedly different than the current proposal.
We will continue to monitor the situation closely and are available to discuss this with clients and their advisors as new information becomes available.
Looking to Learn More?
Schedule a call with us or reach us at 800-839-0054. Foundation Source clients, please contact your Private Client Advisor for assistance. Together, let’s #begiving. You can also check out these additional resources:
