The Taxpayer Certainty and Disaster Relief Act that was passed on December 20, 2019 had an important provision that applies directly to tax-exempt private foundations.  The legislation reduced the excise tax on net investment income from 2% to 1.39%. However, the Act also eliminated the special 1% tax rate that applied if certain distribution requirements were met.

This change will make the completion of Form 990-PF a little easier for all foundations while increasing the tax on those who took advantage of the lower 1% rate by managing their distributions. The changes are effective for taxable years beginning after December 20, 2019 and most foundations will see this change on their 2020 990-PF.