According to an article in the February 11, 2009 issue of the New York Times, private foundations that invested with Bernard Madoff might lose more than their investments. Private foundations and certain charitable trusts (along with their managers/trustees) might be subject to private foundation excise taxes applicable to making jeopardizing investments.
Full Text:
Under IRC section 4944, private
foundations and foundation managers are subject to tax on investments
that jeopardize the foundation's exempt purpose. In general, an initial tax of ten percent of the amount of the
investment applies to the foundation and to foundation managers who
participated in the making of the investment knowing that it
jeopardized the carrying out of the foundation's exempt purposes. If
the investment is not removed from jeopardy (e.g., sold or otherwise
disposed of), an additional tax of 25 percent of the amount of the
investment is imposed on the foundation and five percent of the amount
of the investment on a foundation manager who refused to agree to
remove the investment from jeopardy.
According to an article in The New York Times, organizations that invested with Bernard Madoff might be subject to these taxes based on their failure to vet their investments properly, to heed red flags or to diversify prudently.
Although not
mentioned in the article, section 4944 does not apply only to private
foundations but also to certain charitable trusts. For example,
charitable remainder trusts that name a section 170(c) organization as
an income recipient are also subject to the jeopardy investment rules. The tax also applies
to charitable lead trusts for which the present value of the charitable
interest exceeds 60% of the fair market value of the trust's assets on
the date of its creation.
For further reading, see
For Investing With Madoff, Private Foundations Could Face Tax Fines The New York Times, February 11, 2009 (requires registration)
Comments
NO WAY!
Mark B. Weinberg Weinberg & Jacobs, LLP 11300 Rockville Pike Rockville, MD 20852 Voice 301-468-5500 Fax 301-468-5504
Enough is enough!
I couldn't help but see the parallel to this story. It has now come to light that a whistle-blower had been complaining to the SEC for the past 10 years about Bernie Madoff, yet nothing was done to stop him. And now, some are speculating that an excise tax on organizations that were the victims of his scheme might be imposed by the same government that failed to nip it in the bud! I'm sure many organizations that invested with Madoff believed they were satisfying their obligation to diversify because that's what they hired Madoff to do. So, in my humble opinion, if the IRS wants to levy an excise tax, it should send the bill to the SEC and then pay a portion of the proceeds to the whistle-blower whose pleas to protect investors fell on deaf ears.
Madoff Jeopardy Investment