Page 107 - Social Enterprise A New Business Paradigm for Thailand

the Tax Reform Act of 1969, aimed at regulating tax-exempt foundations more seriously. Today,
both private foundations and public foundations are classified as nonprofit organizations under

Section 501(c)(3) of the Internal Revenue Code, and thus are exempt from income tax.
Nevertheless, in order to maintain this tax-exempt status, the Internal Revenue Service (IRS)
imposes a requirement on private foundations: they must spend at least 5% of their investment
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assets each year on charitable activities.
Beyond income tax exemptions, retaining charitable status brings additional tax benefits to
private foundations. For example, donors can deduct up to 30% of their annual net income for
contributions made to the foundation, and capital gains taxes can be avoided if the donation
consists of high-value assets, such as stocks. For instance, if a donor contributes publicly traded

shares to a foundation, they can claim a deduction based on the full market value of the stock.
Then, when the foundation eventually sells the stock, it only has to pay an excise tax of 1.39%,
which is substantially lower than typical capital gains tax rates.

The establishment of private foundations can also serve as a strategy for reducing or avoiding
estate taxes, which are levied on an individual’s assets at the time of death. At the same time, it
allows wealthy individuals to preserve their assets as a lasting philanthropic legacy for their
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families. Specifically, when assets are donated to a foundation, those assets are removed from
the donor’s estate. As a result, upon the donor’s death, estate taxes are not applied to that

portion of the assets. Estate tax is a federal tax in the United States imposed on estates exceeding
a certain threshold. As of the current threshold, the federal estate tax applies to estates valued
over USD 12.92 million, with a graduated tax rate ranging from 18% to 40%, depending on the
estate’s size. In addition to the federal estate tax, 12 states and the District of Columbia also
impose their own estate taxes. These states include Washington, Oregon, Minnesota, Illinois,
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Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, and Hawaii.
According to the National Center for Charitable Statistics, the United States currently has
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approximately 1,097,689 public charities and about 90,000 private foundations.

The Development of Social Enterprises in the United States
The evolution of social enterprises in the United States began with the practice of nonprofit
organizations engaging in business activities to generate income in support of their social missions.

57 The Internal Revenue Code, 26 U.S.C. Section 4942.
58 Foundation Source, “Benefits of a Private Foundation,” https://foundationsource.com/benefits-of-a-private-
foundation/ (retrieved on January 18, 2025).
59 Medora Lee, USA Today, Your last bill may come after death. What to know about estate and inheritance taxes,
Source:
https://www.usatoday.com/story/money/taxes/2024/02/11/estate-tax-and-inheritance-tax-whats-the-
difference/72529554007/, April 11, 2024.
60 Ibid,
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