Philanthropic Enterprise Act of 2014

Summary: Philanthropic Enterprise Act of 2014 - Amends the Internal Revenue Code to exempt the holdings of a private foundation in any business enterprise that meet specified requirements relating to exclusive ownership, minimum distribution of&nbsp;net operating income for the charitable purpose (all profits to charity), and independent operation (i.e., not controlled by a substantial contributor or family members) from the excise taxes on excess business holdings and unrelated business income.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Philanthropic Enterprise Act of 
2014''.

SEC. 2. EXCEPTION FROM PRIVATE FOUNDATION EXCESS BUSINESS HOLDING TAX 
              FOR CERTAIN PHILANTHROPIC BUSINESS HOLDINGS.

    (a) In General.--Section 4943 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(g) Exception for Certain Philanthropic Business Holdings.--
            ``(1) In general.--Subsection (a) shall not apply with 
        respect to the holdings of a private foundation in any business 
        enterprise which for the taxable year meets--
                    ``(A) the exclusive ownership requirements of 
                paragraph (2),
                    ``(B) the all profits to charity requirement of 
                paragraph (3), and
                    ``(C) the independent operation requirements of 
                paragraph (4).
            ``(2) Exclusive ownership.--The exclusive ownership 
        requirements of this paragraph are met if--
                    ``(A) all ownership interests in the business 
                enterprise are held by the private foundation at all 
                times during the taxable year, and
                    ``(B) all the private foundation's ownership 
                interests in the business enterprise were acquired 
                under the terms of a will or trust upon the death of 
                the testator or settlor, as the case may be.
            ``(3) All profits to charity.--
                    ``(A) In general.--The all profits to charity 
                requirement of this paragraph is met if the business 
                enterprise, not later than 120 days after the close of 
                the taxable year, distributes an amount equal to its 
                net operating income for such taxable year to the 
                private foundation.
                    ``(B) Net operating income.--For purposes of this 
                paragraph, the net operating income of any business 
                enterprise for any taxable year is an amount equal to 
                the gross income of the business enterprise for the 
                taxable year, reduced by the sum of--
                            ``(i) the deductions allowed by chapter 1 
                        for the taxable year which are directly 
                        connected with the production of such income,
                            ``(ii) the tax imposed by chapter 1 on the 
                        business enterprise for the taxable year, and
                            ``(iii) an amount for a reasonable reserve 
                        for working capital and other business needs of 
                        the business enterprise.
            ``(4) Independent operation.--The independent operation 
        requirements of this paragraph are met if, at all times during 
        the taxable year--
                    ``(A) no substantial contributor (as defined in 
                section 4958(c)(3)(C)) to the private foundation, or 
                family member of such a contributor (determined under 
                section 4958(f)(4)) is a director, officer, trustee, 
                manager, employee, or contractor of the business 
                enterprise (or an individual having powers or 
                responsibilities similar to any of the foregoing),
                    ``(B) at least a majority of the board of directors 
                of the private foundation are not--
                            ``(i) also directors or officers of the 
                        business enterprise, or
                            ``(ii) members of the family (determined 
                        under section 4958(f)(4)) of a substantial 
                        contributor (as defined in section 
                        4958(c)(3)(C)) to the private foundation, and
                    ``(C) there is no loan outstanding from the 
                business enterprise to a substantial contributor (as so 
                defined) to the private foundation or a family member 
                of such contributor (as so determined).
            ``(5) Certain deemed private foundations excluded.--This 
        subsection shall not apply to--
                    ``(A) any fund or organization treated as a private 
                foundation for purposes of this section by reason of 
                subsection (e) or (f),
                    ``(B) any trust described in section 4947(a)(1) 
                (relating to charitable trusts), and
                    ``(C) any trust described in section 4947(a)(2) 
                (relating to split-interest trusts).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2013.

SEC. 3. EXCEPTION TO UNRELATED BUSINESS TAX ON SPECIFIED PAYMENTS FROM 
              CERTAIN CONTROLLED ENTITIES.

    (a) In General.--Paragraph (13) of section 512(b) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(G) Subparagraph not to apply to payments from 
                certain philanthropic controlled entities.--
                Subparagraph (A) shall not apply to any payment not in 
                excess of fair market value to a private foundation 
                from an entity which is a business enterprise described 
                in section 4943(g)(1) with respect to such 
                foundation.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2013.