Notes to Financial Statements
3. Federal Taxes
The Internal Revenue Code imposes an excise tax on private foundations equal to 2 percent of net investment income (principally interest, dividends, and net realized capital gains, less expenses incurred in the production of investment income). This tax may be reduced to 1 percent for foundations that meet certain distribution requirements.
The provision for federal excise tax consists of a current provision on realized net investment income and a deferred provision on net unrealized appreciation of investments. The current provision for 2006 and 2005 on net investment income at 2 percent was approximately $24.6 million and $9.5 million, respectively. The change in unrealized appreciation reflected on the statements of activities includes a provision for deferred taxes based on net unrealized appreciation of investments at 2 percent. The increase (decrease) in unrealized appreciation in 2006 and in 2005 resulted in a change of the deferred federal excise tax liability of approximately ($1.9 million) and ($8.3 million), respectively.
In 2006 and 2005 the Foundation was liable for federal and state unrelated business income tax in connection with its limited partnership interests. The Foundation paid or credited approximately $550,000 and $2.5 million for this federal and state unrelated business income tax for 2006 and 2005, respectively.