Newman’s Own Foundation is facing a massive tax bill at the end of this decade if it doesn’t sell off shares of its salad dressing, sauce, and snack empire and can’t convince Congress to change section 4943. Bills pending in the House and Senate would save Newman’s Own from having to divest. Brianblogged about this last week and made a strong argument against amending the Code: “These bills should get moved to the back burner,” Brian writes, “and shame on Newmans for prioritizing the interests of the Newman heirs over good philanthropy.”

Maybe I’m letting my affection for Newman’s Own marinara pasta sauce skew my tax policy judgment, but I actually think that Newman’s Own has a point here. Perhaps we shouldn’t be so worried about private foundations owning business enterprises, and the section 4943 tax on excess business holdings may be excessive in its own right.

First, a bit of background. As Brian notes, section 4943 imposes a tax on the “excess business holdings” of any private foundation. The “permitted holdings” of a private foundation in an incorporated business enterprise are (generally) capped at 20% of the voting stock, and anything over that is excess. The statute allows a grace period of 10 to 15 years during which a private foundation must divest its excess holdings; otherwise, the private foundation will face a tax of 10% times the value of its excess holdings in the first year after the grace period and a tax of 200% every year after that until it divests.

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