Common Compliance Mistakes Private Foundations Make (and How to Avoid Them)

Private foundations play a crucial role in strengthening communities and driving meaningful change. However, with great impact comes great responsibility—and staying compliant with IRS regulations is non-negotiable. When private foundations fail to meet compliance requirements, they risk significant financial penalties and reputational harm. 

In this guide, we’ll walk through some of the most frequent private foundation compliance mistakes and provide clear steps on how to avoid them. Whether you're a CEO or a trustee, understanding these risks—and knowing where to turn for support—can make all the difference. 

Why Private Foundation Compliance Matters 

Before diving into the common pitfalls, it’s essential to understand the stakes. Private foundations are governed by a complex set of IRS rules, including: 

• Minimum distribution requirements 

• Prohibitions on self-dealing 

• Record keeping and reporting standards 

• Restrictions on political activity 

  
  

Failure to comply with these rules can lead to excise taxes, audits, and even the loss of tax-exempt status. The good news? Most compliance mistakes are preventable—with the right knowledge, systems, and support in place. 

1. Failing to Meet Minimum Distribution Requirements 

What’s the Issue? 

Private foundations must distribute at least 5% of their net investment assets annually for charitable purposes. This is known as the “minimum distribution requirement.” If a foundation fails to meet this threshold, the IRS may impose a 30% excise tax on the shortfall. 

How to Avoid It 

• Track investment assets accurately. Partner with a bookkeeping team experienced in foundation accounting. 

• Review distributions quarterly. Don’t wait until year-end to verify compliance. 

• Use Form 990-PF as a checkpoint. This annual return requires documentation of qualifying distributions. 

  
  

👉 How BryMar Helps: We assist in calculating the minimum required distributions and ensure that your books are audit-ready and reflect the correct amounts for each reporting period. Learn more about our audit preparation services. 

2. Mishandling Related-Party Transactions (aka Self-Dealing) 

What’s the Issue? 

Private foundations are prohibited from engaging in “self-dealing” transactions with disqualified persons, including substantial contributors, trustees, officers, and family members.

Examples include: 

• Renting office space from a board member 

• Paying excessive compensation to a trustee 

• Making loans to disqualified persons 

Even if the transaction seems fair, it can still be a compliance violation. 

How to Avoid It 

• Educate board members on self-dealing rules. 

• Review all transactions with related parties. 

• Document everything. Transparency is critical in proving compliance. 

👉 How BryMar Helps: We provide insight and documentation review during the audit prep process to flag and explain related-party transactions in your financials. 

3. Inadequate or Inaccurate Record-keeping 

What’s the Issue? 

Foundations must maintain detailed records to support their grant-making activities, investment income, expenses, and compliance status. Inadequate records can result in inaccurate Form 990-PF filings and potential penalties. 

How to Avoid It 

• Implement consistent bookkeeping practices. 

• Keep supporting documents for all grants and expenses. 

• Reconcile accounts regularly. 

👉 How BryMar Helps: Our monthly bookkeeping services for private foundations ensure your financials stay clean, accurate, and IRS-compliant. Learn more about our bookkeeping support. 

4. Incorrectly Reporting or Misclassifying Grants 

What’s the Issue? 

Not all grants are created equally in the eyes of the IRS. Program-related investments, recoverable grants, and international grants each have unique compliance and reporting requirements. Misclassifying grants can distort your foundation’s financial picture and trigger IRS scrutiny. 

How to Avoid It 

• Classify grants correctly from the start. 

• Review grant agreements with an accountant familiar with foundation rules. 

• Make sure Form 990-PF reflects the correct type and purpose of each grant. 

👉 How BryMar Helps: Our team knows the ins and outs of private foundation accounting and disclosures. We’ll ensure your financial statements and grant classifications align with regulatory standards. 

5. Missing Filing Deadlines for Form 990-PF 

What’s the Issue? 

Form 990-PF must be filed annually by the 15th day of the 5th month after the end of your tax year (typically May 15 for calendar-year foundations). Failure to file—or filing late—can result in daily penalties of up to $100 per day. 

How to Avoid It 

• Mark your calendar with filing deadlines. 

• Work with an accountant who knows your schedule. 

• Start your audit and 990 prep early to avoid bottlenecks. 

👉 How BryMar Helps: We coordinate your audit and 990 timelines, help avoid delays by preparing your financials in advance, and handle the preparation of your Form 990-PF to ensure accuracy and timely filing. 

6. Underestimating the Complexity of IRS Rules 

What’s the Issue? 

Private foundation regulations are nuanced. Assuming you can “figure it out as you go” often leads to costly mistakes. Compliance isn't just about checking boxes—it’s about understanding the bigger picture of how rules interconnect. 

How to Avoid It 

• Invest in expert guidance. The right partner helps translate IRS jargon into action. 

• Educate your leadership team. 

• Create a compliance calendar to stay ahead of deadlines. 

👉 How BryMar Helps: Our goal is to simplify the complex. From audit prep to bookkeeping and advisory, we help private foundations thrive with confidence. 

The BryMar Difference 

At BryMar, we specialize in supporting private foundations through a full range of audit and bookkeeping services. What sets us apart? 

• Expertise in private foundation compliance 

• Clear, timely communication with trustees and CEOs 

• Proactive insights to help you avoid penalties before they happen 

• Custom bookkeeping systems tailored to your needs 

Whether you're preparing for your annual audit, fine-tuning your financial records, or just trying to stay ahead of IRS deadlines, we're here to help. 

Let’s Keep Your Foundation Focused on Impact 

Your mission is to make a difference. Ours is to help you do that without the stress of compliance mistakes or financial missteps. Let BryMar be your go-to partner for financial statement audit preparation and bookkeeping—so you can focus on changing the world. 

Contact us today to schedule a consultation and learn how we can support your foundation’s compliance and financial health. Get in touch with our team.