A version of this article was previously in Exponent Philanthropy in February 2022.
Every year, IRS Form 990-PFs are filed with inaccuracies and mistakes that can be costly to a foundation’s wallet and reputation. Private foundations that don’t have the in-house technology to meet this requirement may seek assistance from tax advisors to avoid these errors.
One such example is that starting with the 2020 tax year, Form 990-PF must be filed electronically. Foundations that submitted a paper filing have already or will receive a notice from the IRS for incomplete filing of their 2020 Form 990-PF because they didn’t meet the electronic-filing requirement.
May 15 deadline for electronic filing
Now that the 2021 Form 990-PF and instructions have been released by the IRS — including the continued requirement to file electronically — many private foundations have shifted focus to filings for the 2021 tax year and are already either working with their tax advisor or preparing this annual filing on their own as the May 15 deadline approaches.
This begs the question: Where should a private foundation focus when preparing or reviewing its Form 990-PF?
Form 990-PF focus areas
Part I, analysis of revenue and expenses
- Is the foundation a cash or accrual basis taxpayer? If it has audited financial statements each year, accrual is likely the better choice for consistency — but that could involve an accounting method change.
- Has the foundation accurately reflected direct investment expenses against investment income and a reasonable allocation of indirect expenses?
- Are disbursements for charitable purposes reported on the cash basis only, which is required for column D?
Parts II & III, balance sheets & analysis of changes in net assets or fund balances
- Has the breakout of investments by type been presented correctly and detailed out by investment in the appropriate supplemental statement?
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.