IRS Form 990-PF for Private Foundations
Form 990-PF is a federal tax return form that must be filed by all organizations officially classified as private foundations. It is mandated by the Internal Revenue Service (IRS) for private foundations to annually submit Form 990-PF to report their activities to the federal government. This form serves as a means for private foundations to publicly disclose their financial information and activities, as well as fulfill various mandatory calculations and disclosures.
What is the Purpose of Form 990-PF?
Form 990-PF serves multiple purposes related to monitoring the activities and finances of private foundations. The IRS utilizes the information provided on this form to ensure that private foundations comply with the law and are eligible to maintain their tax-exempt status.
Form 990-PF serves as a tool for private foundations to determine the excise tax based on investment income, calculate required annual distributions, and publicly disclose financial information such as revenues, expenses, and charitable distributions. Moreover, the form necessitates private foundations to report details about their operations, including any directly managed charitable programs. It also encompasses a comprehensive range of background information, such as the fair market value of all assets, information on trustees, officers, and key employees, a complete list of granted funds with dollar amounts, and various declarations about activities and compliance with the law.
Form 990-PF, being a public document, plays a crucial role as a means for the general public to monitor the activities and impact of private foundations. Copies of Form 990-PF are widely accessible online through various sources. It typically takes just a few minutes for any member of the public to look up the tax return of nearly any private foundation.
It is important to note that Form 990-PF (PF representing Private Foundation) is distinct from Form 990, which is the annual tax return filed by most other tax-exempt organizations, including public charities. The information disclosed on Form 990-PF is specifically tailored to the operations of private foundations and differs significantly from the information provided on the standard Form 990.
Who Must File Form 990-PF?
All organizations that are officially classified as private foundations must file Form 990-PF annually, regardless of their activities, grant-making, asset size, investment income, expenditures, or receipts. This filing requirement applies to both tax-exempt and taxable private foundations, including organizations with pending applications for tax-exempt status on the due date for filing Form 990-PF.
When is Form 990-PF due?
Form 990-PF must be filed with the IRS annually by the 15th day of the 5th month following the end of the private foundation's tax year. For private foundations with a calendar year accounting period, which is the most common, the deadline for filing Form 990-PF is May 15. If the due date falls on a Saturday, Sunday, or legal holiday, the deadline is extended to the next business day. Private foundations are granted an automatic 6-month extension to file Form 990-PF without the need to provide an explanation. To request this extension, organizations must use Form 8868, titled "Application for Automatic Extension of Time To File an Exempt Organization Return." The extension can be filed electronically or by mailing a hard copy of the form.
What are the Penalties for Late Filing Form 990-PF and for Not Paying Taxes On Time
Private foundations must diligently adhere to the requirements of filing their tax returns on time and ensuring timely payment of taxes, as the IRS imposes significant penalties for noncompliance. In severe cases of noncompliance, such as fraud or severe willful neglect, private foundations run the risk of losing their tax-exempt status. There are distinct penalties for both the failure to file tax returns and the failure to make timely tax payments.
Penalty for Failure to File Timely, Completely, or Correctly
If a private foundation fails to file its tax return on time, including any granted extensions, or submits an incomplete or inaccurate return, it incurs a daily penalty of $20 ($105 for large organizations) for each day the failure persists. The maximum penalty per return is limited to the lesser of $10,500 ($54,500 for large organizations) or 5 percent of the foundation's gross receipts for the year. It is important to note that fraudulent filing or intentional failure to file may lead to criminal charges, resulting in significantly harsher financial penalties.
Penalties for Not Paying Tax on Time
Separate penalties are imposed for late payment of taxes, distinct from the penalties for late filing of a complete tax return. This penalty applies to delayed payments of both the net investment income excise tax and the income tax on unrelated business income. It is assessed on any outstanding balance that remains unpaid beyond the due date of the foundation's tax return. The penalty amounts to one-half of 1% of the unpaid tax for each month (or portion thereof) that the tax remains outstanding, with a maximum penalty of 25% of the unpaid tax.
Estimated Tax Penalties
The rules regarding estimated tax payments for private foundations closely resemble those applicable to taxable corporations. Private foundations are required to make estimated tax payments for the excise tax on net investment income and the income tax on unrelated business income. These estimated tax payments must be made throughout the year as income is earned, following the pay-as-you-go nature of the U.S. tax system. For private foundations operating on a calendar year basis, the due dates for estimated tax payments generally fall on May 15, June 15, September 15, and December 15. Failure to make adequate estimated tax payments results in IRS penalties in the form of interest on the underpayment, calculated on a quarterly basis.
Revocation of Tax-exempt Status
Private foundations must annually file Form 990-PF with the IRS. Failure to file an annual return for three consecutive years leads to automatic revocation of tax-exempt status. A private foundation that loses its exemption is still legally obligated to file income tax returns and pay income taxes for the delinquent years. Even after losing tax-exempt status, if the organization continues to exist, it must still file Form 990-PF annually as a taxable private foundation.
How do private foundations pay the tax due on Form 990-PF?
Private foundations are required to make tax payments, including the tax due on Form 990-PF, through the Electronic Federal Tax Payment System (EFTPS), which is administered by the U.S. Department of the Treasury. EFTPS is a secure and free-to-use system. Private foundations must utilize EFTPS for paying employment tax, excise tax, unrelated business income tax, and quarterly estimated tax. Payments cannot be made by postal mail using a regular check.
To make tax payments, private foundations need to enroll in EFTPS using their Employee Identification Number (EIN). The enrollment process for EFTPS can take up to five business days to complete. In order to ensure timely payment, the foundation must schedule the payment during business hours at least one business day before the payment is due.
How do private foundations file Form 990-PF?
Starting with tax years beginning after July 1, 2019, all Form 990-PFs must be filed electronically. Paper filing through postal mail is no longer allowed. To file electronically, private foundations need access to specialized accounting software or can engage a service provider with the necessary capabilities.
For a Form 990-PF to be considered complete, all applicable line items must be filled out, and all required attachments and supplementary schedules must be provided. Each question on the form should be answered with "yes," "no," or "N/A" (not applicable). If a section or part does not apply, it should be marked as "N/A." All total lines must have an entry, including zero when appropriate. Failure to meet these requirements will render the tax return incomplete.
Once the Form 990-PF is completed, it must be signed by an authorized representative of the organization. This is typically done using Form 8453-EO, titled "Exempt Organization Declaration and Signature for Electronic Filing." The electronic signature form should be retained by the originator of the tax return. The IRS must receive the Form 990-PF by the due date, which is usually the 15th day of the fifth month after the end of the organization's fiscal year.
What are the public inspection requirements for Form 990-PF?
Private foundations have an obligation to allow public inspection of their last three years of tax returns (Form 990-PF) and their exemption application (Form 1023 or 1024). These documents should be complete and include all supporting schedules.
Typically, foundations must provide physical copies of these documents to individuals upon request. However, there is an alternative option. If the foundation posts the documents on a web page, whether on its own website or through another organization, and provides instructions on how to access them, physical copies may not be required. The web page should allow users to freely view, download, and print the documents. If the documents are not readily available online, physical copies must be provided upon request. For in-person visits, copies should be provided immediately, while written requests should be fulfilled within 30 days. Foundations may charge a reasonable fee for copying and postage if physical copies are provided.
Regardless of the availability of online access, foundations must always allow in-person inspection of the documents at their office or an agent's office. However, they are not obligated to provide physical copies if the documents are available online. In-person visitors are allowed to review the documents but cannot take them away.
Failure to comply with the public inspection requirements may result in significant financial penalties imposed by the IRS on individuals who do not make the documents available.
Breakdown of 2022 Form 990-PF
The first section of Form 990-PF provides general information about the private foundation. It includes details such as the official name, address, and employer identification number. Additionally, it includes specific disclosures like the fair market value of all assets in Box I and the accounting method used by the private foundation in Box J. Small private foundations commonly use the cash method of accounting, while larger ones tend to use the accrual method.
Part I of Form 990-PF presents an analysis of revenues and expenses. This section includes revenue items such as gross receipts, contributions received, various categories of investment income, as well as expense items like grants paid out, professional fees, and compensation for directors, officers, and employees.
Column (a), Revenue and expenses per books, should align with the private foundation's financial statements, regardless of whether they are audited or unaudited. However, if the foundation receives pro bono goods or services, such as free legal advice, they should not be recorded as revenue or expenses in Part I of Form 990-PF, even if they are included in the financial statements. It's important to note that column (a) does not need to match with any combination of columns (b), (c), and (d). In fact, in most cases, column (a) does not foot across with the other columns.
Column (b), Net investment income, is used to allocate investment income from the private foundation's income-generating investment assets. Only expenses related to the production of investment income should be deducted to arrive at the net investment income. Unrelated business income should not be included in column (b) as it is reported separately on Form 990-T.
Column (c), Adjusted net income, is exclusively utilized by private operating foundations. Private non-operating foundations should leave this column empty. It is worth noting that private non-operating foundations, which leave this column blank, are much more prevalent than private operating foundations. Therefore, it is quite common for this column to remain unfilled. When completing column (c), private operating foundations should exclude revenue from contributions, and long-term capital gains and losses. Regarding expenses, column (c) should only include expenditures incurred to generate the income items present in column (c).
Column (d), Disbursements for charitable purposes, includes grants provided to public charities and operating expenses incurred in carrying out the private foundation's charitable mission. If certain expenses were incurred for both the production of investment income and charitable purposes, they should be allocated between the two categories using a reasonable method. This column should only be prepared using the cash basis method of accounting.
Line 2 is often missed by tax preparers who are unfamiliar with private foundations. If a private foundation receives $5,000 or more in money, securities, or other property from one person during the year, it should attach Schedule B to Form 990-PF. Schedule B provides detailed information about contributors for the given year. If no one donated $5,000 or more, then the box on Line 2 should be checked.
Line 15 (Pension plans and employee benefits) should be used to report payroll taxes on W-2 income for employees of the private foundation, rather than reporting them on Line 18 (Taxes). Line 15 should also be used to report amounts paid by the private foundation for qualified and nonqualified pension programs, as well as health insurance and other benefits.
Line 16 (Professional fees) is used to report legal fees, accounting fees, and other professional fees. It's important to note that this type of expense often triggers the requirement to file Form 1099-NEC for non-employee compensation.
Line 18 (Taxes) should account for all taxes paid by the private foundation, excluding those reported on Line 15 (Pension plans and employee benefits). The excise tax on investment income should be reported in column (a) of the form. However, it should not be entered as a deduction against investment income, adjusted net income, or as a charitable disbursement in columns (b), (c), or (d).
Part II of Form 990-PF is dedicated to reporting the balance sheet, which includes assets, liabilities, and net assets. In this section, column (a) represents the book value of all assets and liabilities at the beginning of the year, while column (b) shows the book value at the end of the year. Column (c) is specifically used to report the fair market value of all balance sheet items at the end of the year. It is worth noting that public securities with unrealized gains or losses often have the most significant differences in fair market value.
If a private foundation maintains total assets of less than $5,000 according to its books throughout the year, it is only required to report the total assets in column (c) on Line 16 and can leave the remainder of column (c) blank.
Line 10 is designated for reporting the private foundation's investments, including stocks, bonds, and other public securities. In most cases, it is mandatory to provide individual details for each investment holding. However, there is an exception for holdings that involve U.S. government or state and municipal government debt securities; for these holdings it is acceptable to provide summary information by reporting the total value as a lump sum.
Line 11 (Investments–other) is used to report alternative investments, including hedge funds, private equity funds, and other business holdings. It is important to note that program-related investments should not be reported on this line. Instead, program-related investments are to be reported on Line 15 (Other assets).
Line 15 (Other assets) serves as a catch-all category for reporting any other assets that have not been accounted for on previous lines. Program-related investments, which are investments made primarily to achieve a charitable purpose, should be reported on this line. Additionally, it is appropriate to include other assets like prepaid rent and accounts receivable on Line 15 as well.
Part III of Form 990-PF is dedicated to disclosing the net asset changes of the private foundation throughout the year. For private foundations that utilize the accrual method or modified cash basis method of accounting, it is necessary to report any unrealized gains or losses from public securities and other assets on Lines 3 and 5, respectively. However, if a private foundation follows the cash basis method of accounting, there is no requirement to report unrealized gains or losses on these lines.
Part IV of Form 990-PF is dedicated to providing detailed information regarding capital gains and losses for the excise tax on investment income. It is not necessary to provide detailed information about publicly traded security transactions here; a summary transaction can be used instead. However, for other assets sold, individual reporting is required. It's important to note that the gain or loss included in calculating a private foundation's unrelated business taxable income should not be included in this section; it should instead be reported on Form 990-T.
In general, when property is donated to a private foundation, the basis of the property carries over from the donor. However, if the property is acquired through a bequest, a stepped-up basis is generally used. Capital losses can be utilized to offset capital gains. If the capital losses exceed the capital gains, the excess cannot be subtracted from other investment income, nor can the losses be carried back or forward to other tax years.
Part V of Form 990-PF is dedicated to calculating the excise tax based on investment income. However, it's important to note that private operating foundations are typically not subject to tax on net investment income. They can indicate this by checking the box on line 1a and are not required to complete the rest of this section.
It's crucial to understand that unrelated business income tax is not included in this calculation. Instead, the calculation of unrelated business income tax is performed on Form 990-T. Similarly, estimated tax payments made toward unrelated business income tax should not be reported on Form 990-PF but rather on Form 990-T.
Part VI-A of Form 990-PF consists of a series of questions concerning the activities of a private foundation. These questions serve as triggers that, if answered affirmatively, necessitate the inclusion of additional attachments, disclosures, or information. Many of these questions are straightforward yes or no inquiries regarding the involvement of the private foundation in activities that are legally prohibited (such as political campaigning). It is important to respond to each question in this section with either "yes," "no," or "N/A" (not applicable).
Part VI-B of Form 990-PF consists of a series of questions aimed at determining whether special excise taxes should be imposed for violations related to self-dealing, failure to distribute income, excessive business holdings, jeopardizing investments, political expenditures, non-charitable expenditures, and other compliance matters.
Line 1a(5) regarding payments or transfers to disqualified persons should be marked yes if the private foundation pays its directors, officers or other classifications of disqualified persons. This response does not typically raise concerns with the IRS as long as the payments fall within the specific exceptions to self-dealing. It is important to answer Line 1b as "no" to indicate that the exception to self-dealing applies.
Line 5a(5) is significant as private foundations are required to disclose any expenditures that do not align with a charitable purpose. It serves as a self-reporting mechanism for non-charitable expenditures made by the foundation.
Part VII of Form 990-PF is dedicated to disclosing information about officers, directors, trustees, foundation managers, highly paid employees, and contractors associated with the private foundation. The form requires providing details such as the individual's name, address, title, average hours worked, and the amount of compensation received. It is important to note that evasive answers like "available upon request" or "as needed" are not permitted. However, for privacy reasons, it is acceptable to use the address of the private foundation itself instead of the individual's personal address.
Officers, directors, and trustees must always be disclosed in Part VII of Form 990-PF. Additionally, highly paid employees and independent contractors who receive over $50,000 during the year must also be reported. However, employees and independent contractors who do not meet this threshold can be excluded from disclosure.
Part VIII-A of Form 990-PF is dedicated to disclosing direct charitable activities conducted by a private foundation. These are programs or initiatives that the foundation directly oversees and operates, rather than solely providing financial support to other charitable organizations through grants. An example would be a private foundation directly distributing food to those in need, rather than funding a public charity to carry out the distribution.
Private non-operating foundations are allowed to engage in direct charitable activities, although it is less common. However, if a private foundation finds itself significantly involved in direct charitable activities compared to passive grantmaking, it may be worthwhile to explore the requirements and considerations for becoming a private operating foundation.
Part VIII-B of Form 990-PF is used to disclose new program-related investments (investments made primarily to accomplish a charitable purpose with no significant aim to produce income) that were made during the year. Importantly, private foundations should not report any investments made in a prior year even if the investments continue to be held in the current taxable year.
Part VIII-B of Form 990-PF is utilized to report new program-related investments made by a private foundation during the tax year. It is important to note that only new investments made during the current taxable year should be reported in this section.
Private foundations should not include investments made in prior years, even if those investments are still held by the foundation in the current taxable year.
Part IX of Form 990-PF is dedicated to calculating the minimum investment return, which is used to determine the required distributable amount based on the 5% distribution rule. The calculation involves several steps and considers the fair market value of assets that are not used or held for charitable activities. Assets such as office equipment used by program staff or program-related investments are excluded from this calculation.
The fair market value of eligible assets is determined using specific rules for each asset type. After determining the total fair market value of eligible assets, it is reduced by a small statutory percentage that represents non-invested cash holdings. This reduction accounts for the portion of the foundation's assets that are held in cash and not invested. Once the adjusted total fair market value is calculated, it is multiplied by 5% to determine the minimum investment return.
Part X of Form 990-PF serves to complete the calculation for the required distributable amount for the year. The starting point for this section is the final amount obtained from Part IX, known as the Minimum Investment Return. Private foundations subtract the excise tax on investment income, as well as the unrelated business income tax, from the calculated amount, to determine of the final distributable amount.
Line four in Part X plays a crucial role in accounting for various recoveries of qualifying distributions from previous years. These recoveries can include the retrieval of a grant from a prior year, the recouping of the principal portion of a program-related investment, or the proceeds generated from the sale of a charitable use asset. It is important to note that these items contribute to an increase in the distributable amount for the current year.
Part XI of Form 990-PF is dedicated to calculating the qualifying distributions that fulfill the required distributable amount. The primary types of qualifying distributions typically include grants made to public charities, payments made for the acquisition of charitable use assets, payments made for the acquisition of program-related investments, and generally any expenses incurred in furtherance of a private foundation's charitable mission, including administrative expenses.
Part XII of Form 990-PF is utilized to assess whether the qualifying distributions made in the current and prior years fulfill the required distributable amount. It examines whether the distributions in each year are sufficient to meet the established requirement.
If the qualifying distributions made in the prior years fall short of meeting the required distributable amount, an excise tax is levied on the shortfall. However, it's important to note that a shortfall of qualifying distributions for the current year does not incur an excise tax. This is because a private foundation has the flexibility to make qualifying distributions in its subsequent fiscal year to fulfill the required distributable amount for the current year. This section serves to track both excess amounts and shortfalls of qualifying distributions from previous years, ensuring compliance with the distribution rules and allowing for adjustments as necessary.
Part XIII of Form 990-PF is dedicated to determining whether a private foundation meets the requirements to be classified as a private operating foundation. If a private foundation is not seeking private operating foundation status, it should simply indicate "N/A" in this section. This applies to all private non-operating foundations, which are primarily focused on providing grants.
To maintain private operating foundation status, a foundation needs to fulfill the income test and satisfy either the assets test, the endowment test, or the support test. Under the income test, a private foundation must demonstrate that it spends at least 85% of its adjusted net income or minimum investment return (whichever is less) on actively conducting its charitable programs. It's important to note that grants made to public charities are not considered for this test.
The assets test, endowment test, and support test are designed to assess whether a private operating foundation's direct charitable activities constitute its primary purpose, rather than primarily providing grants to other public charities. A private operating foundation is required to pass at least one of these three tests. It must demonstrate compliance either (a) for any three years within the last four-year period or (b) for the entire four-year period when considered collectively on an aggregate basis.
Part XIV of Form 990-PF serves as a platform for providing supplementary information and detailed insights into grants paid or approved for future payment by the private foundation.
Line 1a is dedicated to listing any foundation managers who have made significant contributions to the private foundation. This disclosure threshold is based on the total contributions into the foundation over the course of its lifetime.
Line 1b is utilized to disclose any overlapping ownership of a business that is jointly owned by both the private foundation and its key stakeholders, provided that each party holds a 10% or more ownership stake.
Line 2 is utilized to disclose the private foundation's process for accepting grant requests. It sheds light on the foundation's procedures and guidelines for considering and evaluating grant proposals.
Line 3 provides detailed information on grants paid during the year or approved for future payment. It requires disclosure of the recipient's name, address, relationship to the foundation, purpose of the grant, and the precise amount granted.
Part XV-A of Form 990-PF is dedicated to providing detailed information about the income received by the private foundation. This section aligns closely with Part I, Lines 3-11, column (a) of the form, covering various types of income. However, Part XV-A offers an additional opportunity to disclose specific details related to program service revenue, fees from government agencies, and membership dues and assessments. Of particular importance is Column (e), which serves as a designated space to report any income derived from direct activities that contribute to the private foundation's charitable mission.
Part XV-B of Form 990-PF is used to describe in words how any income reported in Column (e) of Part XV-A is related to accomplishing the private foundation’s charitable mission (i.e., its exempt purposes).
Part XV-B of Form 990-PF serves as a platform for providing a narrative description of how the income reported in Column (e) of Part XV-A is connected to fulfilling the private foundation's charitable mission. In this section, the foundation has the opportunity to provide a detailed explanation of how the income generated through various activities and sources, as reported in Column (e), directly contributes to advancing its charitable mission.
Part XVI of Form 990-PF is designated for reporting any transfers to, transactions with, or relationships with noncharitable exempt organizations that the private foundation has engaged in. Noncharitable exempt organizations refer to tax-exempt organizations described in section 501(c), excluding 501(c)(3) organizations, as well as political organizations described in section 527. Additionally, the foundation must indicate whether there is any relationship or affiliation with the noncharitable exempt organization, based on factors such as shared control, common personnel on the board of directors, or other historical or ongoing associations.
Form 990-PF is an essential document that private foundations must file annually with the IRS. It serves as a means for private foundations to publicly disclose their activities and financial information, while fulfilling various mandated calculations and disclosures. By reviewing Form 990-PF, the IRS can oversee private foundations, ensuring their compliance with legal obligations and verifying their ongoing eligibility for tax-exempt status.
The form plays a crucial role in monitoring the activities of private foundations, maintaining transparency, and upholding accountability. It requires careful attention to detail to ensure accuracy and to meet the obligation of filing a complete tax return. Failing to file Form 990-PF can have severe consequences, including significant financial penalties and the potential revocation of a private foundation's tax-exempt status.
Therefore, private foundations should prioritize the accurate and timely completion of Form 990-PF to comply with regulatory requirements, provide transparency to the public, and maintain their tax-exempt status.
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