Madoff and Charities: When Will the Lautenberg Foundation File its Past Due 2008 Form 990-PF? – Installment 40

November 3, 2010Articles White Collar Defense & Compliance Blog

This is the fortieth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Bernard”). Many of the Installments in this series have focused on specific problems and concerns respecting public charities and private foundations that were victims of this and similar schemes.

Installments 15 and Installment 28 of this series discussed a lawsuit brought by two children of, and the private charitable foundation (the “Foundation”) formed by, Senator Frank R. Lautenberg, its President, seeking recovery from Peter Madoff (“Peter”), the brother of Bernard, of an alleged $9 million lost in the Madoff scandal (the “Foundation Lawsuit”). This Installment is intended to provide an update as to the Foundation’s involvement with the Madoff morass.

Installment 28 noted that, as of June 8, 2010, a check of the charity information website Guidestar indicated that the Form 990-PF of the Foundation for 2007 (the “2007 Foundation Form 990-PF”) was the most recent Form 990-PF filed with the Internal Revenue Service (the “IRS”). The 2008 Form 990-PF of the Foundation (the “2008 Foundation Form 990-PF”) had not yet been posted, even though the latest date (after all permitted extensions) for timely filing with the IRS was November 16, 2009, as computed in accordance with the IRS instructions for completion of Form 990-PF (the “IRS Instructions”).

From June 2010 until the current time, a period of over 4 months, I have been regularly requesting copies of the 2008 Foundation Form 990-PF by telephone and email from the Assistant Secretary of the Foundation, who is the person who has care of the books of the Foundation, according to the 2007 Foundation Form 990-PF. She has been highly pleasant, cooperative and courteous and has responded promptly to my various inquiries. However, she advised that the 2008 Foundation Form 990-PF could not be provided, as the accountant for the Foundation had not yet completed it or the Form 990-PF of the Foundation for 2009 (the “2009 Foundation Form 990-PF” and, collectively with the 2008 Foundation Form 990-PF, the “Foundation Forms 990-PF”), which has a final filing date (after all permitted extensions) of November 15, 2010. The Assistant Secretary committed to provide me with a copy of the Foundation Forms 990-PF as soon as they become available from the accountant.

I have postponed the posting this Installment until after Election Day 2010 in order (i) to give the Foundation and its accountant ample opportunity to complete and file the Foundation Forms 990-PF with the IRS, even though the 2008 Foundation Form 990-PF is almost a year overdue, and (ii) to make it clear that this Installment relates to compliance and governance considerations, not politics. As further disclosure, I have voted for Senator Lautenberg in each of his Senatorial elections.

Section M of the General Instructions in the IRS Instructions provides for separate penalties for late filings of Forms 990-PF and for failure to respond within 30 days to requests from the public for copies of Forms 990-PF. The penalty for late filings without reasonable cause is $20 for each day ($100 per day for “large organizations” with $1 million or more in gross receipts), up to a maximum of the lesser of $10,000 ($50,000 for large organizations) or 5% of gross receipts during the tax year. There are also other potential penalties for the Foundation and for “responsible persons” for late filings.

The IRS Instructions also require that “[t]hose filing late (after the due date including extensions) must attach an explanation to the return.” The “reasons” for late filing by the Foundation of the 2008 Foundation Form 990-PF may be diverse as further discussed below. However, the late filing should not be for lack of sufficient funding for the Foundation for losses, excise taxes or potential penalties, as Senator Lautenberg was identified by The New York Daily News on October 28, 2010 as the fourth wealthiest Senator with a net worth of $49.7 million.

Nor should the late filing be for lack of knowledge by Senator Lautenberg and his advisers as to the filing requirements, deadlines and potential penalties. Prior to becoming a Senator, Mr. Lautenberg was, according to a Columbia Business School Alumni publication, an MBA graduate and a founder of Automatic Data Processing (ADP), which became a public company with a “complete portfolio of human resources and employer services” and, ultimately, after he left to become a Senator, “the world’s largest payroll and tax-filing processor.”

Some of the reasons for late filing by the Foundation of the 2008 Foundation Form 990-PF may include the following:

  • the continuation of the Foundation Lawsuit with Peter and the desire of the Foundation not to comment publicly on pending litigation;
  • the desire of the Foundation not to comment publicly on, or provide in financial statements for, pending or completed results of its application for recovery of funds from the Securities Investor Protection Corporation in the Madoff bankruptcy proceedings;
  • the difficulty in accounting in the Foundation financial statements for 2008 actual cash receipts from Madoff and subsequent contributions by the Foundation to charities out of such cash receipts;
  • the possibility of “clawback” in the Madoff bankruptcy proceedings of cash received by the Foundation in the latter years of the Madoff scheme;
  • the discomfiture of publishing in the Forms 990-PF the allegation that virtually all of the assets reflected for the Foundation at December 31, 2007 in its 2007 Foundation Form 990-PF were wiped out in the Madoff scandal; and/or
  • as identified in Installment 38, the disclosure of the potential liability for the Foundation and/or its managers under the Internal Revenue Code for excise taxes resulting from investment with Madoff that may be deemed a “jeopardizing investment” that unreasonably endangered the carrying out of the Foundation’s exempt purposes.

I believe that the Lautenberg Foundation and Senator Lautenberg as its President have a duty to comply with IRS requirements by filing the 2008 Foundation Form 990-PF as soon as possible and filing the 2009 Foundation Form 990-PF on a timely basis on or before November 15, 2010. It is essential that our public servants add credibility to the IRS self-reporting process by meeting filing requirements. Even if there are difficult or uncertain aspects of disclosure by the Foundation with respect to the Madoff scandal, there may be alternatives available. Should circumstances change, amendments to Forms 990-PF can also be filed. Future Installments of this series will cover some of the methods used by other charities in their public IRS filings to confront the difficulties and uncertainties flowing from the Madoff scandal and its aftermath.

[To be continued in Installment 41]