What Are the Most Common 990-PF Filing Mistakes—and How Can You Avoid Them?

Private foundations file Form 990-PF every year. It’s not just a tax return—it’s a public accountability statement. The IRS requires private foundations to make their tax returns available for inspection, and in today’s world that usually means online access. Essentially anyone can look it up, which means accuracy matters not only for tax purposes but also for how the foundation is viewed from the outside.

Because the full return is public, every schedule and attachment you file is visible to regulators, watchdog groups, grantees, and even the media. In practice, your 990-PF is one of the most transparent financial documents your organization produces. Accuracy and clarity are therefore critical. A mistake isn’t just something the IRS might question—it becomes part of your foundation’s online record, available to anyone who cares to look.

The following are some of the mistakes we most often see in practice, along with steps to avoid them.

1) Schedule B slip-ups (contributors)

One of the most common filing errors happens with Schedule B, the part of the return that lists contributors. Foundations sometimes forget to attach it when required, include incomplete information, or incorrectly check the “not required” box when the schedule is in fact needed. Schedule B is required if any single contributor gave $5,000 or more in money or property during the year, whether cash or noncash. Many board members are surprised to learn that for private foundations, unlike public charities, the donor names and addresses shown on Schedule B are not confidential—anyone can view them. Errors here are obvious to reviewers and undermine confidence in the rest of the return. To be sure your foundation meets the Schedule B reporting threshold, be sure to attach the schedule when required, and double-check that names, addresses, amounts, and descriptions of noncash contributions are all complete and accurate.

2) Incomplete grant listings (Part XIV)

The grants table is the centerpiece of your return—it tells the story of where your foundation’s dollars are going. Too often, though, important details are left out. A frequent problem is providing vague descriptions for the purpose of the grant such as “general support.” While that might feel accurate, the IRS expects something more specific. For example, if a grant is made to a local homeless shelter, the description should note its charitable purpose—such as “alleviating homelessness”—rather than simply “general support.”

Another mistake is including grants that have been approved but not yet paid in cash. Reporting promised amounts as if they were paid creates confusion and can misstate your required distributions. To avoid these issues, make sure every grant entry includes the grantee’s full contact information, the specific charitable purpose, and the actual amount paid during the year. Only under extremely rare and specific circumstances can a “set-aside” count as a charitable distribution before it is paid out, and this generally requires IRS pre-approval.

3) The 5% payout miscalculation (Parts IX & X)

Each year, foundations must distribute at least 5% of their non-charitable-use assets for charitable purposes. Calculating this incorrectly is a frequent error. Common missteps include counting assets that should be excluded, like property used directly for charitable purposes, or failing to apply the statutory 1.5% reduction that serves as a proxy for reasonable cash balances. Another mistake is counting pledges or approvals as distributions before any funds have actually been paid out.

There’s another adjustment many filers overlook: after you calculate the 5% amount, the required payout can be reduced by the amount of net investment income tax (the private foundation excise tax) and any unrelated business income tax the foundation actually paid during the year. This reduction is built directly into the distributable amount calculation on the return, so taxes paid effectively offset part of the payout requirement.

It’s also important to get the value of the assets right. Publicly traded securities should generally be valued monthly, but there is a special rule for real estate (and similar non-public, hard-to-value assets): you can use a written, certified, independent appraisal and apply it every five years (instead of annually) if it meets IRS criteria. That helps reduce cost and workload, but only if you follow the IRS’s requirements for who does the appraisal, how it’s done, and keeping documentation of the appraisal process.

Because the payout requirement drives compliance with IRS rules, mistakes here can turn into penalties. The key is to approach the calculation with care—making sure the right assets are included, values are determined appropriately, and all allowable adjustments are taken into account. A thoughtful, well-documented process not only avoids penalties but also demonstrates to the IRS, grantees, and the public that your foundation is meeting its obligations responsibly.

4) Carryforward and carryover mix-ups (Part XII)

When a foundation distributes more than the minimum 5% in a given year, the “extra” amount doesn’t just go away. Those excess distributions can be carried forward to help meet payout requirements in future years when giving is leaner. These amounts, called excess distribution carryovers, essentially act as a cushion that allows a foundation to apply past generosity against future obligations.

The challenge is that many foundations lose track of these balances, let them expire (they generally can be carried forward for up to five years), or fail to apply them in the correct order. The IRS requires that the oldest carryovers be used first, which helps prevent unused amounts from simply dropping off. If carryovers are ignored or misapplied, the foundation can end up showing undistributed income on the books and potentially owing excise taxes that could have been avoided.

5) In-kind and allocation mistakes (Part I)

Another area where errors crop up is in the reporting of contributions and expenses in Part I, which functions as the foundation’s statement of revenue and expenses. A frequent mistake is recording the value of donated services or free office space as contribution income. While these in-kind resources may be valuable to the foundation’s work, the IRS specifically instructs that they should not be reported as contributions on the 990-PF. Including them artificially inflates revenue and can give the impression of larger operations than actually exist.

Another problem area is expense allocation. Column (a) begins with expenses “per books,” which then need to be allocated between investment expenses in column (b), and charitable disbursements in column (d). Errors often occur when the same cost is recorded once as an investment expense… and again as a charitable distribution in column (d). This kind of double-counting exaggerates the foundation’s reported activity and overstates either charitable expenditures or investment expenses.

Column (d) deserves particular attention because it reports the expenses that actually count toward the foundation’s 5% payout requirement. Even if the foundation’s internal books are maintained on an accrual basis, column (d) must be kept strictly on a cash basis. That means only amounts physically paid out during the year can be included. If an expense has been recorded in the accounting records but not yet paid, it does not belong in column (d). Mixing accrual entries into this column is a common error, as it can make it appear that the foundation has met its payout obligation when in fact it hasn’t.

6) Mixing unrelated business income with investment income

Private foundations sometimes confuse unrelated business income (UBI) with net investment income, but the two are taxed very differently and must be kept separate. UBI comes from active business activities that are regularly carried on and not substantially related to the foundation’s mission—for example, advertising revenue from a website, renting out extra spaces in a parking lot, or more commonly, receiving partnership income from a business venture. In practice, the most common source of UBI for private foundations is income passed through on Schedule K-1s from hedge funds, private equity funds, or other alternative investments. These funds often hold underlying businesses that generate UBI, and that income flows through to the foundation.

If a foundation has gross UBI of $1,000 or more in a year, it must file Form 990-T, even if the activity results in little or no net taxable income. UBI is generally taxed at the corporate rate of 21% if the foundation is organized as a corporation, or at trust rates if organized as a trust. State corporate or trust tax can also apply, increasing the overall tax burden.

Net investment income, by contrast, covers passive income streams such as dividends, interest, rents, royalties, and capital gains. This income is subject to the private foundation excise tax of 1.39%, reported directly on Form 990-PF—not on Form 990-T.

Mixing these categories can lead to both compliance problems and inaccurate reporting. Foundations should report investment income on a gross basis in Part I, with related expenses shown separately, rather than netting the two. The fix is straightforward: keep UBI and investment income in separate accounts, always test UBI against the $1,000 gross threshold, and file Form 990-T when required. Clear separation prevents tax trouble and ensures the return presents an accurate picture of the foundation’s finances.

7) Public-disclosure blind spots

One of the most overlooked issues is just how visible the Form 990-PF really is. Leadership sometimes assumes that certain portions of the return—like donor lists or attachments—won’t be shared publicly, but with private foundations that assumption is wrong. By law, the entire 990-PF must be available for public inspection, including all schedules and attachments. In the real world, the full tax filing is posted online by nonprofit data services such as GuideStar (Candid) and ProPublica Nonprofit Explorer. A quick Google search of your foundation’s name plus “990-PF” usually turns up a PDF copy within seconds.

That includes Schedule B donor information. Unlike public charities, which can redact donor names, private foundations must disclose them. This comes as a surprise to many boards and families, who may not realize that contributor details—names, addresses, amounts, and even descriptions of noncash contributions—are open to anyone with an internet connection.

The implications are significant. Your Form 990-PF functions as a public profile of the foundation’s operations. Mistakes or vague disclosures aren’t just a compliance risk—they become part of your foundation’s permanent online record, visible to regulators, grantees, watchdog groups, and even journalists. A poorly worded grant description, inconsistent financials, or an omitted attachment can give outsiders the wrong impression of your stewardship.

The best practice is to review the completed return as though you were an outsider: ask how it would look to a potential donor, a grant applicant, or even a reporter. This perspective often highlights unclear language, missing context, or numbers that don’t tell the story you intend. Taking time for that “public copy” review before filing is one of the simplest ways to protect your foundation’s reputation while ensuring regulatory compliance.

Conclusion

Form 990-PF may be complex, but careful attention to detail goes a long way toward avoiding costly mistakes. By understanding the most common pitfalls—and putting processes in place to catch them—you not only stay compliant with IRS rules but also present your foundation as a responsible steward of charitable resources. A thoughtful, accurate return protects both your tax status and your reputation.

‍

Seeking expert guidance? We’re here to help!

At CPA KPA, we’re passionate about magnifying the positive impact of foundations. Feel free to reach out to us anytime at 888-402-1780 for a complimentary and obligation-free conversation. You can also conveniently submit your questions and inquiries through our contact page. Let’s connect today and explore how we can help your foundation have a lasting and meaningful impact!

‍