Instructions For Form 990-Pf - Return Of Private Foundation Or Section 4947(A)(1) Nonexempt Charitable Trust Treated As A Private Foundation - 2017 Page 14
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38expenses included in cost of goods sold
debt/basis percentage of a debt-financed
By contrast, if the foundation is a
on line 10b. For foundations that don't use
property is 80%, only 80% of the gross
beneficiary of a trust, distributions from the
the cash method of accounting for book
income (and expenses) for that property is
trust aren't included in income in column
purposes, charitable expenditures
used to figure the section 511 tax on Form
(c) if the trust was created and funded by a
reported in column (a) won't necessarily
990-T. The remaining 20% of the gross
person other than the foundation, and
match amounts reported in column (d).
income (and expenses) of that property is
aren't included in column (b). See
used to figure the section 4940 tax on net
Regulations section 53.4942(a)-2(d)(2)
investment income on Form 990-PF. (See
(vii) and Notice 2004-35, 2004-19 I.R.B.
Column (b). Net Investment
Form 990-T and its instructions for more
889, available at
IRS.gov/irb/
Income
information.)
2004-19_IRB/index.html.
All domestic private foundations (including
Investment expenses. Include in
section 4947(a)(1) nonexempt charitable
Column (c). Adjusted Net Income
column (b) all ordinary and necessary
trusts) are required to pay an excise tax
expenses paid or incurred to produce or
Nonoperating private foundations
each tax year on net investment income.
collect investment income from interest,
should see Nonoperating private
TIP
dividends, rents, amounts received from
Exempt foreign foundations are subject
foundations, later, to find out if
payments on securities loans (as defined
to an excise tax on gross investment
they need to complete column (c).
in section 512(a)(5)), royalties, income
income from U.S. sources. These foreign
from notional principal contracts,
organizations should complete lines 3, 4,
Private operating foundations. All
annuities, substantially similar income
5, 11, 12, and 27b of column (b) and
organizations that claim status as private
from ordinary and routine investments,
report only income derived from U.S.
operating foundations under section
and income from similar sources; or for
4942(j)(3) or (5) must complete all lines of
sources. No other income should be
the management, conservation, or
column (c) that apply, according to the
included. No expenses are allowed as
maintenance of property held for the
deductions.
general rules for income and expenses
production of income that is taxable under
that apply to this column, the specific line
Definitions. See below.
section 4940.
instructions for lines 3–27c, the special
If any of the expenses listed in column
rule, later, and Examples 1 and 2, later.
Gross investment income. Gross
(a) are paid or incurred for both
investment income is the total amount of
General rules. In general, adjusted net
investment and charitable purposes, they
investment income that was received by a
income is the amount of a private
must be allocated on a reasonable basis
private foundation from all sources.
foundation's gross income that is more
between the investment activities and the
However, it doesn't include any income
than the expenses of earning the income.
charitable activities so that only expenses
subject to the unrelated business income
The modifications and exclusions
from investment activities appear in
tax. It includes interest, dividends, rents,
explained below are applied to gross
column (b). Examples of allocation
payments with respect to securities loans
income and expenses in figuring adjusted
methods are given in the instructions for
(as defined in section 512(a)(5)), royalties
net income.
Part IX-A.
received from assets devoted to charitable
For income and expenses, include on
activities, income from notional principal
Limitation. The deduction for
each line of column (c) only that portion of
contracts (as defined in Regulations
expenses paid or incurred in any tax year
the amount from column (a) allocable to
section 1.863-7), annuities, substantially
for producing gross investment income
the adjusted net income computation.
similar income from ordinary and routine
earned incident to a charitable function
investments, and income from similar
Income. For column (c), include
can't be more than income earned from
sources. Therefore, interest received on a
income from charitable functions,
the function includible as gross investment
student loan is includible in the gross
investments, related and unrelated
income for the year.
investment income of a private foundation
business, and amounts set aside;
For example, if rental income is
making the loan.
short-term capital gains and losses;
incidentally realized in 2017 from historic
recoveries of amounts that were treated
Net investment income. Net
buildings held open to the public,
as qualifying distributions in prior tax
investment income is the amount by which
deductions for amounts paid or incurred in
years; and amounts set aside that are
the sum of gross investment income and
2017 for the production of this income may
determined not to be needed for the
the capital gain net income exceeds the
not be more than the amount of rental
purposes for which they were set aside.
allowable deductions discussed later.
income includible as gross investment
Don’t include gifts, grants or contributions,
Tax-exempt interest on governmental
income in column (b) for 2017.
or long-term capital gains or losses.
obligations and related expenses are
Expenses related to tax-exempt
excluded.
Expenses. Deductible expenses
interest. Don’t include on lines 13–23 of
include the part of a private foundation's
Investment income. Include in column
column (b) any expenses paid or incurred
operating expenses paid or incurred to
(b) all or part of any amount from column
that are allocable to tax-exempt interest
produce or collect gross income reported
(a) that applies to investment income.
that is excluded from lines 3 and 4.
on lines 3–11 of column (c). If only part of
However, don't include in column (b) any
If the foundation is a partner in a
the property produces income includible in
income and related expenses reported on
partnership or a shareholder of an
column (c), deductions such as interest,
Form 990-T.
TIP
S corporation, then pertinent items
taxes, and rent must be divided between
For example, investment income from
of income, gain, loss, deduction, or credit
the charitable and noncharitable uses of
debt-financed property unrelated to the
from the entity's Schedule K-1 (Form 1065
the property. If the deductions for property
organization's charitable purpose and
or 1120S) generally should be reported in
used for a charitable, educational, or other
certain rents (and related expenses)
columns (b) and (c) for the tax year of the
similar purpose are more than the income
treated as unrelated trade or business
entity ending with or within the
from the property, the excess won't be
income should be reported on Form
foundation's tax year. See Regulations
allowed as a deduction but may be treated
990-T. Income from debt-financed
sections 53.4940-1(c)(1) and
as a qualifying distribution in Part I,
property that isn't taxed under section 511
53.4942(a)-2(d)(1).
column (d). See Examples 1 and 2 below.
is taxed under section 4940. Thus, if the
Form 990-PF Instructions
-14-
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