Completing Form 990-PF is a demanding process, and private foundations often encounter two significant challenges: time commitment and complexity.
Time Commitment:
The IRS estimates that it takes over 200 hours to fully prepare and file Form 990-PF. This includes learning relevant laws (60 hours) and recordkeeping tasks (140 hours). For smaller foundations with limited staff, dedicating this amount of time can be a strain on resources. This includes tasks such as categorizing expenses, maintaining investment and banking records, and ensuring accurate grant documentation.
Complexity:
The form itself is multifaceted, with sections that must be completed in a non-sequential order as outlined in the IRS instructions. Even experienced accountants may find it challenging due to its numerous parts and intricate reporting requirements. Specific complexities include:
- Calculating the 5% minimum distribution requirement: Foundations must accurately determine this based on the fair market value of non-charitable-use assets. Mistakes can lead to penalties.
- Reconciling net assets: Part III requires reconciling changes in net assets from the start of the year to the end, which involves tracking all revenues, expenses, and market fluctuations.
- Detailed investment reporting: Foundations must report capital gains, losses, and investment income accurately. This can become complicated when dealing with diverse portfolios that include alternative investments or foreign securities.
- Avoiding prohibited transactions: Understanding and properly disclosing activities like self-dealing or grants to certain organizations requires careful attention to IRS rules and regulations.
Regulatory Scrutiny and Public Transparency:
The form is a public document, often reviewed by regulatory agencies, the press, and potential grantees. Errors or omissions not only risk penalties but can also damage the foundation’s reputation. Additionally, as certain states increase scrutiny of private foundations, the importance of accuracy has grown.
To manage these challenges, foundations should ensure they have robust recordkeeping systems, engage professionals familiar with the nuances of the Form 990-PF, and utilize resources like Exponent Philanthropy’s Filing the Form 990-PF Primer to streamline the process.
Disclaimer: While we pride ourselves on our advice, please realize Exponent Philanthropy is not a law or accounting firm. This information contained in this Q&A is being provided for informational purposes only and not as part of an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code. It is our advice that you seek independent counsel, for any tax, accounting or legal issues you may have, related to matters that are of a material concern to you or your organization.
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