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Publication 557

Excise Taxes on Private Foundations(p69)

There is an excise tax on the net investment income of most domestic private foundations. This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. Report estimated taxes on Form 990-W.
In addition, there are several other rules that apply to excise taxes on private foundations. These include:
  1. Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons,
  2. Requirements that the foundation annually distribute income for charitable purposes,
  3. Limits on their holdings in any business enterprise,
  4. Provisions that investments must not jeopardize the carrying out of exempt purposes, and
  5. Provisions to assure that expenditures further the organization's exempt purposes.
Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons.
For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF.