Over the years, we have examined thousands of tax returns of private foundations, filed before becoming Foundation Source clients. What we have found is that many tax practitioners are unfamiliar with the nuances of the form, which is highly specialized. They therefore may miss important opportunities for the foundation and unknowingly subject the foundations to scrutiny. In this article, our foundation tax professionals share some important 990-PF instructions and tips for navigating this nuanced tax form.
Some preparers are under the misconception that only grants will satisfy a foundation’s minimum distribution requirement (MDR). In fact, legitimate administrative expenses count toward the satisfaction of the MDR, and not counting them can cause a foundation to scramble, making hasty grants (and perhaps wasting funds) in order to avoid a shortfall penalty. A better understanding of qualifying expenses can maximize the funds available for planned, strategic grantmaking.
Frequently, return preparers fail to apply investment- related expenses to offset the investment income, resulting in a higher tax bill for the foundation.