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

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 ...

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