Initial tax. An excise tax of 30 percent is imposed on the undistributed income of a private foundation that has not been distributed before the first day of the second (or any succeeding) tax year following the year earned, if the first day falls within the taxable period. A short tax year is considered a tax year.
The initial tax may be abated if the foundation can show that the failure was due to reasonable cause and not to willful neglect, and that the failure to distribute was corrected within the correction period.
Additional tax. If the initial tax is imposed and the undistributed income has not been distributed by the end of the taxable period, an additional tax of 100 percent of the amount remaining undistributed will be imposed. The tax will not be assessed, or if assessed will be abated, if the undistributed income is reduced to zero during the correction period.
Payment of the excise tax is required in addition to, rather than instead of, making required distributions of undistributed income.
In order to demonstrate that it is a private operating foundation, an organization must meet an assets test, a support test, or an endowment test and demonstrate that it distributes substantially all (85% or more) of the lesser of its adjusted net income or minimum investment return directly for the active conduct of activities that further its exempt purposes.
A private foundation will jeopardize its tax-exempt status under section 501(c)(3)
if a substantial part of its activities is attempting to influence legislation (commonly referred to as lobbying). Private foundations that spend money on lobbying activity will incur an excise tax on those expenditures; this tax is so significant that it generally acts as a lobbying prohibition.
