Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 13Excise Tax Based on Investment Income: IRC §4940

• 13.1 Formula for Taxable Income
  • (a) Gross Investment Income
  • (b) Interest
  • (c) Dividends
  • (d) Rentals
  • (e) Royalties
  • (f) Estate or Trust Distributions
  • (g) Partnerships
  • (h) Foreign Investments
• 13.2 Capital Gains
  • (a) Basis
  • (b) Questionable Types of Gain
  • (c) Nontaxed Gains
• 13.3 Ponzi Scheme Losses
  • (a) Ordinary, Not Capital Losses
  • (b) Phantom Income
• 13.4 Deductions from Gross Investment Income
  • (a) Deductions Allowed
  • (b) Deductions Not Allowed
  • (c) Deducting Theft Losses
  • (d) Changing Accounting Method or Tax Year
• 13.5 Tax-Planning Ideas
  • (a) Distributing, Rather than Selling, Property
  • (b) Qualification for 1 Percent Tax Rate Applicable before 2020
  • (c) Redistributing Donated Property
• 13.6 Foreign Foundations
• 13.7 Timely Payment of Excise Tax
• 13.8. Tax on Private Colleges and Universities
• 13.9 Exempt Operating Foundations

To pay the cost of “extensive and vigorous” enforcement of sanctions imposed on privately funded charities, Congress, in 1969, adopted a tax on private foundation investment income. Congress thought that foundations should continue to be exempt from income tax, so the tax was enacted as an excise tax rather than the normal income tax imposed by Internal Revenue Code (IRC) §1. The term gross investment income means the gross amount of income from interest, dividends, rents, payments with respect to securities loans, and royalties, but does not include any income to the extent included in computing ...