The Purpose of the Excise Tax Imposed on a Private

question 141

True/False

The purpose of the excise tax imposed on a private foundation for failure to distribute sufficient levels of income is to motivate the foundation to distribute more of its income for application to exempt purposes and thus be classified as a feeder organization.

---

Definitions:

Qualified Pension Plan

A retirement plan that meets requirements established by the Internal Revenue Code, offering tax advantages such as tax-deferred growth on earnings.

Ordinary Income Rates

Tax rates applicable to an individual's ordinary income, including wages, salaries, commissions, and income from interest or dividends, which are taxed at progressive rates.

Employee Contributions

Employee Contributions are amounts set aside from an individual's earnings into retirement plans, benefit plans, or taxes, often deducted directly from their paycheck.

Tax-deferred Retirement Plans

Savings plans that allow individuals to postpone paying taxes on income invested until it is withdrawn, typically during retirement.