Understanding the Form 990PF

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Understanding the Form 990-PF
Grantmakers of Oregon and Southwest
Washington Gary McGee, CPA March 12, 2009
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• Annual information return for private foundations
• A public document
• A regulatory document

What is the Form 990-PF?
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• To demystify the key information contained in the
  Form 990-PF
• To respond to the more frequently asked questions
  about the Form
• To review the construct of the mandatory
  distribution requirements, qualifying
  distributions, and excise taxes

What is the Form 990-PF? Our objectives today
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• Nonoperating (standard) private foundation
• Operating private foundation
• Conduit foundation
• Common fund foundation
• Community foundation
• Nonexempt charitable trust

Types of private foundations
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Due Date The 15th day of the 5th month
following the close of the foundations
accounting period
What is the due date of the return?
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• Use Form 8868 to request the extension
• An automatic 3-month extension will be granted if
  the form is properly completed and timely filed,
  and if any balance due is paid
• If more time is needed, Form 8868 is also used to
  request an additional 3-month extension

Can you request an extension?
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• Yes, if and when your Foundation files at least
  250 returns each year
• The IRS can waive this requirement in cases of
  undue hardship

Must you file the Form 990-PF electronically?
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• 20 for each day the failure continues (100 for
  larger organizations), unless you can show that
  the failure was due to reasonable cause.
• Maximum penalty cannot exceed the smaller of
  10,000 or 5 of the organizations gross
  receipts
• A large organization is one that has gross
  receipts exceeding 1.0 million for the tax year

What about penalties? Failure to file timely,
completely, or correctly
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• The IRS will make a written demand that the
  delinquent return be filed or the information
  furnished within a reasonable time. The person
  failing to comply may have to pay 10 for each
  day the failure continues, up to a maximum
  penalty of 5,000.

What about penalties? Failure to file timely,
completely, or correctly
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• Forms 990-PF, 990-T, and the exemption
  application (Form 1023) must be made available to
  the public by both the foundation and the IRS
• This must be possible both via office visitation
  and by providing copies or making them widely
  available

What are the public inspection requirements?
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• Per the IRS The president, vice president,
  treasurer, assistant treasurer, chief accounting
  officer, or other corporate officer who is
  authorized to sign
• Many organizations have the return signed by the
  chief executive officer

Who should sign the return?
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Preparation of the Form Sequencing Chart

• Parts I and IV
• Part II
• Heading
• Part III
• Part VII-A
• Part VIII
• Parts IX-A, IX-B X

• Part XII, lines 1-4
• Parts V VI
• Part XII, lines 5-6
• Part XI
• Part XIII
• Part VII-B
• Parts XIV-XVII

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Per the IRS Line 24. Operating and
administrative expenses vs. In reality Line
24 contains Direct grantmaking expenses Direct
charitable activities All other operating costs
(administrative overhead)
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Excise tax on net investment income Private
foundations must pay an annual 2.0 excise tax on
net investment income (i.e., the sum of
interest, dividends, net income from realized
capital gains, and other income earned outside of
a foundations charitable purpose, minus
deductions). Nonoperating foundations may pay a
reduced 1.0 excise tax if their qualifying
distributions for that year are greater than
their five-year rolling average of qualifying
distributions plus 1.0 of that years net
investment income. In other words, the reduced
rate is an incentive for nonoperating foundations
to increase their rate of giving over time.
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Estimated tax payments are required
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Distribution requirements for nonoperating
foundations Private nonoperating foundations are
required to expend a certain amount for
charitable purposes. The amount, which is
calculated each year on the Form 990-PF, works
out to about 5.0 of the average market value of
the foundations assets (excluding the
foundations administrative assets, such as
office equipment and supplies used by employees
or consultants for the administration of the
foundation's charitable activities).
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In determining the amount to be distributed, cash
and securities are valued monthly and averaged,
while other types of assets are valued annually.
From this total, the foundation subtracts the
1.0 or 2.0 excise tax it has to pay on net
investment income. 5.0 of the result is the
distributable amount. If a foundation pays out
more than it needs to in a particular year as
qualifying distributions, there is an excess
distributions carryover that allows the
additional amounts to be carried over and
credited against the distributable amount for up
to five subsequent years.
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2008 2009 2010 2011 Distributable amount
(5.0) 100,000 90,000 110,000 130,000 Carryforwar
d 0 70,000 40,000 0 100,000 160,000 150,000 130,0
00 Less total qualifying disb. (30,000) (120,000)
(150,000) (150,000) Undistributed income
70,000 40,000 0 (20,000)
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• Qualifying distributions
• The annual charitable payout requirement is
  satisfied by
• Disbursements for charitable purposes (both
  grants and program/administrative costs)
• Amounts paid to acquire charitable-use assets
• Charitable program-related investments and
• Amounts set aside for future charitable projects.

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• Grants paid. Page 1, part I, line 25. Detail on
  page 11, part XV.
• Total charitable distributions. Page 8, part
  XII, line 4.
• Excise taxes on investment income. Page 4, part
  VI, line 5.
• The ratio of administrative costs to grants. Not
  calculated on the return. See page 1, part I,
  and divide line 24 by line 25. Recall caveat.
• Distribution ratio. Not calculated on the
  return. Divide total qualifying distributions
  (page 8, part XII, line 4) by the net value of
  non-charitable use assets (page 8, part X, line
  5).

What is the key information people look for in
the 990-PF?
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• How much was the foundation required to
  distribute this year? See page 8, part XI, line
  7. Frequently compared to actual charitable
  distributions. See page 8, part XII, line 4.
• Fair market value of all assets held at the end
  of the year. Heading, line I.
• Compensation of officers, directors and trustees.
  Page 6, part VIII, line 1, column c.

What is the key information people look for in
the 990-PF?
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Questions?
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Understanding the Form 990-PF
Grantmakers of Oregon and Southwest
Washington Gary McGee, CPA March 12, 2009