The Tax Cuts and Jobs Act signed into law by President Trump on Dec. 22 could have a deleterious impact on the Westport-based Newman’s Own Foundation, which now faces a 200 percent federal excise tax on the value of the for-profit food company it owns due to a provision that was cut.
A 1969 tax law was designed to deter foundations from owning more than 35 percent of a for-profit business for more than five years. If it’s more than a small stake or longer than the five-year period, the IRS can impose a 200 percent excise tax on the value of the for-profit enterprise. The law was designed to block rich people from using foundations as a way to avoid taxes on their for-profit businesses. When Academy Award-winning actor Paul Newman died in 2003, he willed his food company Newman’s Own to the Newman’s Own Foundation. In 2008, the foundation received an extension of the five-year period from the IRS. It was renewed in 2013 and is set to expire in November 2018.
The Newman’s Own food company gives away all of its profits to charity, and an exemption for Newman’s Own Foundation’s ownership of the food company was included in the original versions of the House and Senate tax bills. It was dropped from the final bill after Senate Parliamentarian Elizabeth MacDonough ruled that the exemption was among several items that violated the so-called Byrd Rule that restricts the types of provisions that can be included in legislative reconciliation measures.
Bob Forrester, president and CEO of the Newman’s Own Foundation, said that it would be extremely difficult to sell the food company to a third party because of its mission of donating all of its profits to charitable works.
“Nobody has the authority to say ‘You have to go out of business,’ but they have the authority to make you pay a 200 percent tax rate that in effect makes you go out of business,” he said.