Does a private foundation need an audit?

Every private foundation files Form 990-PF. It is due by the 15th day of the 5th month after year end. The Form 990-PF instructions do not require audited financial statements, and the Internal Revenue Code does not either.

The instructions do require foundation managers to send a copy of Form 990-PF to state Attorneys General where state law requires it. That includes the state of the principal office and the state of incorporation. Those states may have their own reporting rules.

• California. Gov. Code §12586(e) requires audited statements for charitable corporations and trustees that report to the Attorney General with gross revenue of $2,000,000 or more, excluding government grants and contracts that require an accounting. An audit committee is also required.
• Massachusetts. The Attorney General exempts private foundations that file Form 990-PF from its audit and review rule.
• New York and other states. Requirements depend on how the foundation is registered. Check with the state charities office. Our state audit threshold table covers the general rules.
• Banks and lenders. A credit line or loan agreement may require audited or reviewed statements.
• Donors and partners. Gift agreements, donor-advised arrangements or co-funders may ask for audited statements.
• Bylaws and board policy. Many foundations require an annual audit in their own governing documents.

Excise tax on net investment income. Under IRC §4940, the rate is 1.39% for tax years beginning after December 20, 2019. The House proposed tiered rates in 2025, but the enacted law kept 1.39%.

Minimum distribution. A non-operating foundation must pay out its distributable amount. That starts with the minimum investment return: 5% of the fair market value of noncharitable-use assets, less acquisition debt. Uncorrected shortfalls face a 30% excise tax under §4942.

Self-dealing. Sales, leases, loans, providing goods or services, and paying compensation between the foundation and a disqualified person are generally acts of self-dealing under §4941, with listed exceptions. Indirect self-dealing is also prohibited. An audit tests related-party activity, so it can surface these early.

For a full overview, see the IRS Life Cycle of a Private Foundation.

Best for: family and independent foundations whose state, bank, donor or board requires audited or reviewed statements.

1. Free initial consultation. Share your state registrations, your last Form 990-PF and what is driving the request.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter that names the report type.
3. Independence check. We confirm independence before we accept an audit or review.
4. One request list. Investment statements, grant files, board minutes and related-party information.
5. Fieldwork, done remotely. We confirm investment balances and test grants and expenses.
6. Report. We present results to the board and issue the report.

We can also prepare the foundation's Form 990-PF, subject to independence rules.