What the Form Is For

Form 990-PF (Return of Private Foundation) is the annual information return that private foundations must file with the Internal Revenue Service. Think of it as the IRS's way of ensuring private foundations—charitable organizations funded typically by a single family, individual, or corporation—are operating transparently and meeting their tax obligations. IRS

Unlike public charities that receive broad public support, private foundations usually derive their funds from a limited number of sources and must follow stricter rules. Form 990-PF serves two critical purposes: it calculates any excise tax owed on the foundation's investment income (typically 1-2% of net investment income), and it documents the foundation's charitable distributions and activities to ensure they're fulfilling their public benefit mission.

The form also acts as a public accountability document. Once filed, it becomes publicly available, allowing donors, researchers, and watchdog organizations to review how the foundation manages its assets and distributes funds. For section 4947(a)(1) nonexempt charitable trusts that have no taxable income, Form 990-PF can even substitute for the trust's regular income tax return (Form 1041).

Private foundations that must file include all domestic tax-exempt private foundations under section 501(c)(3), taxable private foundations that have lost their exempt status, and certain nonexempt charitable trusts. The form must be filed regardless of the foundation's size—there's no minimum asset or income threshold that exempts a private foundation from this requirement. IRS

When You’d Use Form 990-PF

Filing Late or Filing Amended Returns

Regular Filing Deadline

Form 990-PF must be filed by the 15th day of the 5th month following the close of your foundation's accounting period. For foundations operating on a calendar year (January 1 to December 31), this means the 2013 return was due by May 15, 2014. If you operate on a fiscal year, adjust accordingly—for example, a foundation with a June 30, 2013 year-end would have had until November 15, 2013 to file. IRS

If the due date falls on a Saturday, Sunday, or legal holiday, you have until the next business day to file. In case of complete liquidation, dissolution, or termination of the foundation, the return must be filed by the 15th day of the 5th month following that event.

Filing Extensions

If you need more time, you can request extensions using Form 8868. An automatic 3-month extension is granted when you properly complete Form 8868, file it by the original due date, and pay any balance due. This moves a calendar-year foundation's deadline from May 15 to August 15.

Need even more time? You can request an additional 3-month extension (up to November 15 for calendar-year foundations) using the same Form 8868. However, this second extension isn't automatic—you must demonstrate reasonable cause for needing the extra time. IRS

Filing Amended Returns

Mistakes happen. To correct information on a return you've already filed, prepare a complete amended Form 990-PF with all the correct information (not just the changed items). Check the "Amended Return" box in Item G at the top of page 1.

Important timing rule: If you're amending to claim a refund of the section 4940 excise tax, you have 3 years from the date you filed the original return, or 2 years from the date you paid the tax—whichever is later. Beyond those deadlines, you lose the right to a refund.

When filing an amended return, you must also send copies to any state authorities who received your original return, ensuring they have updated information. IRS

Key Rules or Details for 2013

Who Must File

All private foundations must file Form 990-PF annually, including:

• Exempt private foundations under section 501(c)(3)
• Taxable private foundations that have lost exempt status
• Section 4947(a)(1) nonexempt charitable trusts treated as private foundations
• Organizations with pending applications for exempt status that have agreed to private foundation classification IRS

The Critical 3-Year Rule

Here's a rule that can have devastating consequences: If your foundation fails to file Form 990-PF for three consecutive years, you automatically lose your tax-exempt status. This provision began taking effect in 2011, and recovery from automatic revocation is complex and costly. Once revoked, your foundation must file regular income tax returns and pay income taxes while continuing to file Form 990-PF as a taxable private foundation. IRS

The 5% Distribution Requirement

Private foundations must distribute approximately 5% of their prior year's average net investment assets annually for charitable purposes. The minimum investment return is 5% of the excess of the aggregate fair market value of all foundation assets (other than assets used directly in carrying out the foundation's exempt purpose). This calculation ensures foundations actively support charitable work rather than merely accumulating wealth. IRS

Public Disclosure Requirements

Your Form 990-PF is a public document. The IRS requires organizations to make the return available for public inspection upon request, and the return must also be sent to the Attorney General of:

• Each state where the foundation conducts activities
• The state where the foundation's principal office is located
• The state where the foundation was incorporated or created

Important privacy note: Because these returns become public, never include Social Security numbers on Form 990-PF or any attached schedules. IRS

Excise Tax on Net Investment Income

Most private foundations pay either a 1% or 2% excise tax on their net investment income. The standard rate is 2%, but foundations can qualify for the reduced 1% rate by meeting certain distribution requirements outlined in section 4940(e). This tax is calculated in Part VI of the form and applies to income from dividends, interest, capital gains, and other investment sources.

Step-by-Step (High Level)

Filing Form 990-PF involves navigating 17 different parts, but following this sequence minimizes jumping back and forth:

Step 1: Gather Your Financial Records

Compile your foundation's complete financial statements, including balance sheets, income statements, investment records, and detailed grant payment documentation. You'll need both book values and fair market values for assets.

Step 2: Complete the Heading

Fill in basic identifying information including the foundation's name, address, Employer Identification Number (EIN), and accounting period. Indicate whether this is an initial return, final return, amended return, or address change.

Step 3: Calculate Capital Gains (Part IV)

Start here because amounts from Part IV flow into other sections. Report all sales of assets and calculate capital gains or losses for purposes of the investment income tax.

Step 4: Revenue and Expenses (Part I)

This comprehensive section tracks all income and expenses across four columns: book basis, net investment income, adjusted net income, and charitable disbursements. Lines include contributions received, investment income, program service revenue, and all operating expenses.

Step 5: Balance Sheets (Part II)

Report your foundation's beginning and end-of-year assets and liabilities. If your foundation has $5,000 or more in assets at any time during the year, you must also complete column (c) showing fair market values.

Step 6: Net Assets Analysis (Part III)

Explain changes in your foundation's net assets from the beginning to the end of the year, reconciling the balance sheet figures.

Step 7: Calculate and Pay Excise Tax (Parts V and VI)

Determine if you qualify for the reduced 1% excise tax rate (Part V), then calculate the actual tax due (Part VI). This becomes your tax liability for the year.

Step 8: Minimum Investment Return (Part X)

Calculate 5% of your foundation's investment assets not used for charitable purposes. This figure determines your minimum annual distribution requirement.

Step 9: Distributable Amount (Part XI)

Determine how much your foundation must distribute for charitable purposes, adjusting the minimum investment return for taxes paid and prior year carryovers.

Step 10: Qualifying Distributions (Part XII)

Document all charitable distributions and qualifying administrative expenses that count toward meeting your distribution requirement.

Step 11: Undistributed Income (Part XIII)

Track any shortfall or excess in required distributions across multiple years (going back five years). Deficiencies trigger additional excise taxes reported on Form 4720.

Step 12: Complete Remaining Parts

Finish Parts VII-A and VII-B (activities statements), Part VIII (officers and highly paid employees), Parts IX-A and IX-B (charitable activities and program-related investments), Part XIV (if claiming operating foundation status), Part XV (supplementary grant information), Parts XVI-A and XVI-B (income-producing activities), and Part XVII (noncharitable exempt organization transactions).

Step 13: Sign and File

An authorized officer must sign the return. Mail it to the IRS Service Center in Ogden, UT, or file electronically (mandatory if your organization files 250 or more returns during the calendar year). IRS

Common Mistakes and How to Avoid Them

1. Missing or Incomplete Schedule B

The Mistake: Failing to attach Schedule B (Schedule of Contributors) or not checking the box on Line 2 certifying it's not required.
How to Avoid It: If you received contributions of $5,000 or more from any single contributor, complete and attach Schedule B. Otherwise, check the certification box indicating you don't need to file it. IRS

2. Incomplete Part XV (Supplementary Information)

The Mistake: Leaving Part XV blank when the foundation has $5,000 or more in assets, or failing to provide adequate grant descriptions.
How to Avoid It: Part XV must detail every grant paid. Include the recipient's name, address, relationship to substantial contributors, purpose of the grant, and amount. If you only make grants to pre-selected organizations and don't accept unsolicited applications, check the box on line 2. IRS

3. Incorrect Asset Values in Part II

The Mistake: Foundations with $5,000+ in assets failing to complete column (c) showing fair market values, or providing fair market values that don't match investment statements.
How to Avoid It: Obtain year-end statements from your investment advisors. For publicly traded securities, use the average of high and low prices on December 31. For hard-to-value assets like real estate or private equity, obtain professional appraisals. IRS

4. Failing to Report All Required Investment Details

The Mistake: Not providing adequate detail for investments on Part II, lines 10a-10c (missing shares, descriptions, or book values).
How to Avoid It: Create a detailed attachment showing each investment holding with complete information: number of shares, description of security, book value, and fair market value. The IRS instructions require complete reporting of all investment holdings. IRS

5. Recording In-Kind Contributions Incorrectly

The Mistake: Reporting donated services or free office space as contribution income on Part I, line 1.
How to Avoid It: Generally, donated services and use of facilities are not reported as contribution income on Form 990-PF. These in-kind contributions may need footnote disclosure but don't belong in Part I revenue lines according to IRS guidance. IRS

6. Misclassifying Grant Expenses

The Mistake: Confusing grants with program-related investments, or failing to properly categorize expenditure responsibility grants.
How to Avoid It: Understand that grants are gifts with no expectation of repayment. Program-related investments (Part IX-B) are investments made primarily to accomplish charitable purposes. If making grants to non-501(c)(3) organizations or individuals, you must exercise "expenditure responsibility" and report it properly in Part XV. IRS

7. Not Signing the Return

The Mistake: Submitting an unsigned Form 990-PF.
How to Avoid It: An authorized officer—president, vice president, treasurer, assistant treasurer, chief accounting officer, or corporate officer—must personally sign the return. For trusts, an authorized trustee must sign. An unsigned return is considered unfiled. IRS

What Happens After You File

IRS Processing and Retention

Once filed, your Form 990-PF enters the IRS processing system. The agency reviews returns for completeness, accuracy, and compliance with tax law. Returns are retained in IRS records and become part of the public database of tax-exempt organizations.

Public Availability

Within approximately 3-6 months of filing, your Form 990-PF becomes publicly accessible through the IRS Tax Exempt Organization Search (TEOS) tool at www.irs.gov. Your foundation must also make copies available directly upon request at your principal office during regular business hours, typically for a reasonable copying fee. IRS

Assessment of Tax and Penalties

If you owe excise tax on investment income (calculated in Part VI), the IRS will process your payment. If there's a discrepancy or if you underpaid estimated taxes, you'll receive a notice of additional tax due, plus interest and potential penalties.

Late filing triggers automatic penalties: If an organization fails to file Form 990-PF by the due date (taking into account extensions), it will pay $20 for each day the return is late. The maximum penalty for each return will not exceed the smaller of $10,000 or 5% of the gross receipts of the organization for the year. For large organizations (those with gross receipts exceeding $1 million), the penalty increases to $100 per day with a maximum of $50,000. These penalties only abate if you demonstrate reasonable cause for the delay. IRS

Potential Audit or Examination

While most returns aren't audited, certain red flags can trigger IRS examination:

• Significant changes in assets or distributions from prior years
• Failure to meet minimum distribution requirements
• Transactions with disqualified persons
• Substantial unrelated business income
• Errors or inconsistencies in reported information

If selected for audit, you'll receive a notice from the IRS TE/GE (Tax Exempt & Government Entities) Division outlining the scope of the examination and requesting supporting documentation.

State Filing Consequences

Many states rely on Form 990-PF for their charitable oversight. After filing with the IRS, your foundation typically sends copies to state Attorneys General and charity regulators as required. States use this information to ensure compliance with state charitable solicitation laws and may follow up with questions or additional filing requirements. IRS

FAQs

1. Can I file Form 990-PF on paper, or must I file electronically?

For the 2013 tax year, you could file on paper by mailing your return to the IRS Service Center in Ogden, UT. However, electronic filing was mandatory if your organization filed 250 or more returns (of all types) during the calendar year. The IRS has expanded e-filing requirements in subsequent years to promote efficiency and accuracy. IRS

2. What's the difference between a private foundation and a public charity?

Private foundations typically receive funding from a single source (family, individual, or corporation) and primarily make grants to other charitable organizations. Public charities receive broad public support from many donors and often operate direct charitable programs. Private foundations face stricter rules, pay excise tax on investment income, must meet annual distribution requirements, and file Form 990-PF. Public charities file Form 990 or 990-EZ instead. IRS

3. How do I calculate the 1% versus 2% excise tax rate?

The default excise tax rate on net investment income is 2%. To qualify for the reduced 1% rate under section 4940(e), your foundation must demonstrate in Part V that its current year's qualifying distributions, plus certain prior year excess distributions, exceed the sum of: (1) the foundation's average minimum investment return for the 5-year base period, plus (2) 1% of the foundation's net investment income for the current year. Many foundations find the calculation complex and benefit from working with a tax professional familiar with private foundation rules. IRS

4. What are "qualifying distributions" and what counts toward the 5% requirement?

Qualifying distributions are amounts paid to accomplish your foundation's charitable purposes, including grants to other charities, scholarships, program-related investments, and reasonable administrative expenses directly connected to making grants or conducting charitable programs. What doesn't count: investment management fees, excise taxes paid, amounts added to permanent endowment (generally), and most overhead expenses unrelated to charitable activities. Calculate these in Part XII of the form. IRS

5. What happens if we don't meet the 5% minimum distribution requirement?

Failure to distribute the required amount triggers a two-tier excise tax penalty under section 4942. An excise tax of 30% is imposed on the undistributed income of a private foundation that has not been distributed before the first day of the second taxable year following the taxable year for which it was required to be distributed. If the foundation does not correct the underdistribution within a specified time period, an additional tax of 100% of the undistributed amount applies. These penalties are reported on Form 4720 and can be severe, making it critical to monitor distributions carefully. IRS

6. Can we correct errors after filing without filing a formal amended return?

It depends on the error. For minor mathematical mistakes or obvious errors, the IRS may correct them during processing and notify you. However, for substantive errors—incorrect grant information, wrong excise tax calculation, missing schedules, or material omissions—you should file a complete amended Form 990-PF. Check the "Amended Return" box and include a statement explaining the changes. Remember that the amended return becomes the public record, replacing the original. IRS

7. Are there any exceptions to the filing requirement for small private foundations?

No. Unlike public charities, which may qualify to file Form 990-N e-Postcard if their gross receipts are normally $50,000 or less, all private foundations must file complete Form 990-PF regardless of size. Even foundations with minimal assets or no activity during the year must file the return by the due date to maintain tax-exempt status and avoid the three-year automatic revocation rule. IRS

Key Takeaway

Form 990-PF is your private foundation's annual report card, demonstrating transparency, accountability, and compliance with federal tax law. While the form can seem daunting with its 17 parts and complex calculations, approaching it systematically and understanding the key requirements ensures your foundation maintains its tax-exempt status and fulfills its charitable mission effectively. When in doubt, consult with a CPA or attorney experienced in private foundation compliance—the cost of professional guidance is far less than the penalties for errors or non-compliance.

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