​November 16, 2009 – A Critical Date for Madoff Charity Stakeholders with Calendar Fiscal Years – Installment 19

November 17, 2009Articles White Collar Defense & Compliance Blog

This is the nineteenth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 18 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Monday, November 16, 2009 is a critical day for Section 501(c)(3) public charities and private foundations with a calendar fiscal year that invested with Madoff. As a matter of fact, it is a critical day for all Section 501(c)(3) charitable organizations with a calendar fiscal year. It is the final day on which such public charities and private foundations can file their Forms 990 and 990-PF, respectively, with the Internal Revenue Service (the “IRS”) for calendar year 2008 on a timely basis after using both of the two potentially available extension periods. A fling after that date is delinquent and can lead to penalties by the IRS.

While this blog series has strongly advocated filings with the IRS by charitable organizations for 2008 as early as possible, many have delayed their filings until the deadline. A number of factors may have led to this approach, including the following:

1. The new Form 990 for 2008 added probing questions on governance, executive compensation, charitable mission, policies, etc., which required many of the charities to institute or update protocols and procedures.

2. The accounting and auditing firms that assist charities in preparing Forms 990 and 990-PF were under great pressure to deal with the complexities of the new Forms and the financial challenges facing many charities.

3. During 2008 many charities suffered substantial losses in endowment fund values and declines in fundraising that led some of them to delay potentially embarrassing disclosures to the public as long as possible.

4. A number of those charities that invested with Madoff and similar alleged Ponzi schemes had hoped that the IRS would give greater guidance on the uncertainties in treatment of losses and distributions in their filings for 2008 and prior years.

5. Charities that have invested with Madoff or suffered large losses during 2008 may have wanted to see how other Forms 990 and 990-PF filers that filed earlier in the year with the IRS treated the subjects in their financial statements and textual materials.

6. Even charities that did not suffer losses in 2008 may have wanted to see how other Forms 990 and 990-PF filers that filed earlier treated subjects such as description of mission, conflicts of interest and whistleblower policies, executive compensation and other potentially sensitive new areas of disclosure.

Over the course of the next several months it will be interesting and informative to visit Guidestar to review and analyze the 2008 Form 990 and 990-PF filings as they are posted. This blog series will continue to monitor and report on such developments.

[To be continued in Installment 20]