IRS rules and regulations pertaining to private foundations are complicated and sometimes not well understood - even experienced tax professionals are "prone" to making errors, missing opportunities for savings and possibly exposing the foundation to large penalties, Foundation Source said.

Many tax practitioners are unfamiliar with the “nuances” of the 990-PF form for private foundations, creating missed opportunities for savings and risk of legal scrutiny, according to Foundation Source.

The 990-PF form is used to calculate a private foundation's tax liabilities based on investment income, and to report charitable distributions and activities.

Foundation Source said the 990-PF is a “potential minefield” for the unwary, with common pitfalls including: Failing to fully complete the form; calculating the minimum distribution requirement; using the accrual method of accounting to show satisfaction of MDR; failing to make estimated tax payments; and not tracking foundation insiders.

Missed opportunities for savings are often caused, it added, by: Not counting administrative expenses; not using investment-related expenses to offset investment income; failing to determine eligibility for the reduced 1 per cent tax rate; and failing to properly calculate excess grant carryover.

Foundation Source's chief legal officer, Jeffrey Haskell, will be leading a webinar on April 22 about common tax reporting errors made by private foundations on their 990-PF form.