3. Federal Taxes
The Internal Revenue Code imposes an excise tax on private foundations equal to 2% 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% for foundations that meet certain distribution requirements.
The provision for federal excise tax consists of a current provision on realized net investment income and for 2007, a deferred provision on net unrealized appreciation of investments. The current provision for 2008 and 2007 on net investment income, approximately $17.4 million and $31.6 million, was at 1% and 2%. For 2007, 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%. The decrease in unrealized appreciation in 2008 and in 2007 resulted in a change of the deferred federal excise tax liability of approximately $75.6 million and $9.9 million, respectively.
In 2008 and 2007, 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 $1.7 million and $8.0 million for this federal and state unrelated business income tax for 2008 and 2007, respectively.