At a glance

• The main takeaway: For Private Foundations, navigating the tax landscape can be intimidating.
• Impact on your business: Understanding Form 990-PF is not just a compliance requirement but a strategic necessity that can influence your Foundation’s financial health and mission impact.
• Next steps: Aprio’s Nonprofit team assists Private Foundations in navigating these complexities to assure they meet their obligations and maximize their impact.

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The full story:

For Private Foundations, navigating the tax landscape can be intimidating. Understanding Form 990-PF is not just a compliance requirement but a strategic necessity that can influence your Foundation’s financial health and mission impact.

Key takeaways

Understanding columns of form 990-PF: 

• Part I, Column (b): Tracks net investment income, which is subject to a 1.39% excise tax. 
• Part I, Column (d): Monitors charitable disbursements on a cash basis, contributing to the minimum 5% distribution requirement. 
• Parts IX, X, XI, and XII: Provide the necessary calculations to verify that the Foundation meets the minimum annual distribution requirement of 5%.

Maximizing allowable expenses

Foundations can reduce their burden by increasing allowable expenses related to:

• Excise tax: 
  • Investment management fees
  • Legal costs 
• Annual 5% required minimum distribution:
  • Administrative expenses directly related to managing investments 

We recommend conducting an annual review of expenses to assure all allowable costs are accurately recorded.

Meeting the 5% minimum distribution requirement

Private foundations must distribute a minimum of 5% of their average fair market value of non-charitable use assets annually. Failing to meet this requirement can result in a 30% penalty. Parts IX, X, XII, and XIII of Form 990-PF outline the calculation for the minimum investment return, distributable amount, qualifying distributions, and any undistributed income including carryforwards or shortfalls.

Strategic use of carryforwards

Excess distributions can be carried forward for up to five years to offset future shortfalls, providing flexibility which requires careful tracking to refrain from penalties.

The bottom line

Understanding Form 990-PF is essential for compliance and strategic planning. At Aprio, we assist Private Foundations in navigating these complexities to assure they meet their obligations and enhance their impact. For personalized guidance to improving your Foundation’s operations, contact the Nonprofit Tax Group at Aprio. Together, we can assure your Foundation not only meets compliance standards but thrives.

Related Resources/Assets/Aprio.com articles/pages

• Aprio Nonprofit Page