Exempt Organizations Technical Guide›TG 57: Taxes on Net Investment Income – IRC Section 4940›Table of Contents
B. Examination Tips
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(1) Request and review the foundation’s Determination File from the EO Records
Unit. If available, the determination file could include the original application for exemption, any correspondence between the IRS and the foundation during the review, and the determination letter issued to the foundation. The determination letter will indicate the organization’s tax-exempt and foundation status.
(2) Review IDRS prints INOLES and BMFOLO to verify the organization’s
information. The prints include, among other things, the organization’s filing requirements, fiscal year end, exemption subsection, foundation status code, and determination ruling date. Review the information against the filed Form 990-PF for any discrepancies regarding foundation status—operating vs. non-operating foundation—to further investigate.
(3) Review the Form 990-PF because an exempt operating foundation must attach a
copy of its favorable determination letter to its initial return after securing the status. The organization should complete Part VI by checking the box and entering the date of the ruling or determination letter on line 1a and entering “N/A” on line 1. The rest of Part Vl should be blank. If the organization retains this status, it’s not required to attach a copy of the letter to subsequent returns. See Form 990-PF Instructions for more details.
(4) Review Statements Regarding Activities, and Private Operating Foundations, of
Form 990-PF to confirm the applicant meets the requirements of private operating foundation status.
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(5) Tour the organization’s facility. Perform an initial interview with someone that is
knowledgeable of the organization’s exempt (and non-exempt) activities.
(6) As necessary, calculate public support under Section 170(b)(1)(A)(vi) and/or
Section 509(a)(2).
(7) Review the foundation’s governing body and inquire about disqualified individuals
and persons. Review Form 990-PF Instructions, Information About Officers, Directors, Trustees, Foundation managers, Highly Paid Employees and Contractors.
(8) If a private foundation isn’t an operating foundation, consider whether it has
distributed sufficient amounts in qualifying distributions. If not, seek to impose the Section 4942 excise tax for failure to distribute income.
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