The Madoff Aftermath and Charities: The IRS Forms 990-PF of the Shapiro and Wilpon Foundations – A Contrast in Transparency – Installment 27

June 1, 2010Articles White Collar Defense & Compliance Blog

This is the twenty-seventh in a series of Installments on this blog that discusses issues that arose in the aftermath of the Bernard L. Madoff (“Madoff”) scandal. Against the backdrop of the Madoff scandal, Installment 26 of this series discussed certain disclosure requirements for public charities adopted by the Internal Revenue Service (“IRS”) in its new Form 990 (the “New Form 990”) and contrasted such requirements with those of the Form 990-PF filed with the IRS by private charitable foundations. The Forms 990 and 990-PF (including those discussed in this Installment) are universally available on the Internet on Guidestar and other sites.

Installment 26 of this blog series observed that, for 2007, the Carl & Ruth Shapiro Family Foundation (the “Shapiro Foundation”) filed a Form 990-PF (the “Shapiro 990-PF”) and an amended Form 990-PF (the “Shapiro Amendment”). The Shapiro Amendment reflected a disappearance for the Shapiro Foundation of (i) $191,003,929 in fair market of assets and (ii) $38,953,906 in investment income previously reported in the Shapiro 990-PF. However, the Shapiro Amendment gave no explanation for the disappearances or that they had resulted from events that came to light in December 2008 and thereafter; even more troubling was the fact that the Shapiro Amendment contained no reference to Madoff whatsoever, even though the schedules in the original Shapiro 990-PF had referred to him 10 times by name.

The Shapiro Foundation filed its 2008 Form 990-PF with the IRS on November 20, 2009. Again, as in the Shapiro Amendment, no reference was made to the substantial investments with, or losses attributable to, Madoff.

This somewhat perplexing approach to disclosure adopted by the Shapiro Foundation regarding its involvement with Madoff is in stark contrast to the filing with the IRS on September 23, 2009, by the Judy & Fred Wilpon Family Foundation (the “Wilpon Foundation”) of its 2008 Form 990-PF (the “Wilpon Form 990-PF”). The Wilpon Form 990-PF did not merely disclose the fact that the Wilpon Foundation had investments with, and losses from, Madoff; the Wilpon 2008 Form 990-PF attached as Appendix A the Wilpon Foundation’s “Statement by Taxpayer Using the Procedures in Rev. Proc. 2009-20 to Determine a Theft Loss Deduction Related to a Fraudulent Investment Arrangement.” That Statement discloses the calculation of the Wilpon Foundation’s losses attributable to Madoff.

Each of the filings by the Shapiro Foundation and the Wilpon Foundation may be in compliance with current IRS requirements for Forms 990-PF; however, we are in an era of ever greater expectations by society for transparency in the operations and activities of charitable organizations. The Wilpon Foundation’s filing came much closer to achieving these expectations than the filings by the Shapiro Foundation.

As was stated in Installment 26, the IRS has greatly enhanced the quality of disclosure required in the New Form 990. It should review and consider revisions for the Form 990-PF to enhance consistency and transparency of reporting by private foundations and require more meaningful explanation of material matters and events.

[To be continued in Installment 28]