Form 990 Makeover, Version 2.0

Wed, 17 Feb 2010 13:45:00 GMT

Even hard-core tax mavens don't usually get excited when the IRS releases instructions for tax forms. An exception this year is the release of instructions for the 2009 Form 990, the form to be filed by tax-exempt organizations (other than private foundations) for calendar year 2009 and tax years starting in 2009. The new instructions, as well as the new forms, are available here.

As we've reported previously, the IRS did a top-to-bottom redo of the Form 990 for the 2008 reporting year. The redo added a number of very specific questions about board composition, policies, conflicts of interest, identity of related parties, and transactions between interested persons. Organizations that conduct certain activities (such as hospitals or schools) or have certain assets or liabilities (such as endowments, art collections, or tax-exempt bonds) also have new schedules to complete.

In moving from 2008 to 2009, the IRS made very few changes to the forms and schedules. A number of changes made in the instructions are for clarification in response to the many questions posed to the IRS by organizations in completing the initial round. Some other changes are more substantive.

The IRS has compiled a table of significant changes, as well as in the beginning of the Form 990 instructions. A few changes that may be of interest to many organizations are:

· Related organizations may include governmental entities as well as private entities.

· The instructions clarify that foreign investments are included among foreign activities that must be reported on Schedule F (Statement of Activities Outside the United States).

· The instructions to Schedule K (Supplemental Information on Tax-Exempt Bonds) address how bonds should be reported when multiple organizations (for example, a parent and subsidiary) use bond proceeds. The reporting organizations can choose whether to report all bonds at the borrower (e.g., parent) level or to allocate reporting among all related organizations, but reporting must be consistent within the group.

· Tax-exempt organizations could in the past notify the IRS by letter of changes in their activities. The Form 990 instructions articulate the current IRS practice, which is that it will not respond to such letters with a letter stating that the change in activities doesn’t affect exempt status. All changes should simply be reported on the Form 990.

· The instructions clarify how leased employees, employees on common paymaster arrangements, and employees paid through payroll agents are to be counted and reported.

This list of changes is not an exhaustive or complete list.

In preparation for filing the 2009 Form 990, exempt organizations should make sure their systems can capture any additional needed information.

Disclosure forms and practices should be reviewed to confirm that the organization will get all the information it needs to make all disclosures of interested persons and transactions under the revised instructions.

Portions of some schedules did not have to be completed in the 2008 Form 990, like portions of the schedules for hospitals and tax-exempt bonds, because the requested information was difficult to obtain or was not maintained in that form.

Organizations that must complete these schedules for the first time should take advantage of this delay so that accurate information can be gathered.

Finally, organizations that have not yet filed the 2008 Form 990 – for example, organizations with a tax year ending in June or September who are on extension – may in some cases be able to get clarification from the new instructions in completing last year’s form.

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part II - Installment 23

Sun, 14 Feb 2010 17:36:26 GMT

This is the twenty-third in a series of installments on this blog that are discussing 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 22 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

This Installment presents in tabular form and expands Installments 14 and 22 relative to the comparison as to how Hadassah and Yeshiva have disclosed publicly their respective investments with Madoff. Defined terms and links not otherwise contained herein are included in Installments 14 and 22. Readers are encouraged to consult the earlier blog posts as a background for this Installment.

As stated in Installments 14 and 22, it is my view that Yeshiva provided significantly greater disclosure and transparency relative to Madoff and related matters through its Form 990 filing than Hadassah did in its Forms 990. As a result I believe that Yeshiva has been more successful than Hadassah in using the Form 990 reporting process proactively to build new credibility.

The following table updates the tabular information contained in Installment 14 based upon the December Hadassah Form 990 that was first discussed in Installment 22.

A COMPARISON OF HADASSAH AND YESHIVA FORMS 990

(Information in the Hadassah and Yeshiva columns is from the Hadassah Forms 990 and the Yeshiva Form 990, unless otherwise noted; readers may access Forms 990 by visiting Guidestar after making a free online registration. The table below should be read in conjunction with the definitions, links and discussion in Installments 14 and 21 of this series.)

CATEGORY	HADASSAH	YESHIVA
Fiscal Year End	May 31, 2008 and December 31, 2008	June 30, 2008
Dates of Form 990	April 3, 2009 for Form 990 for the fiscal year ended May 31, 2008 (“May Form 990”) and November 16, 2009 for Form 990 for the fiscal year ended December 31, 2008 (“Dec Form 990”)	May 14, 2009 (“Yeshiva Form 990”)
Final Due Date for Form 990 Filing with IRS, Including All Allowed Extensions	April 15, 2009 for May Form 990 and November 16, 2009 for Dec Form 990	May 15, 2009
Office Where Financial Books are Kept	50 West 58^th Street New York, NY 10019	500 West 185^th Street New York, NY 10033
Paid Preparer of Form 990	Alan Kluger KPMG LLP 345 Park Avenue New York, NY 10154-0102	Alan Kluger KPMG LLP 345 Park Avenue New York, NY 10154-0102
Potential Conflicts of Interest Involving Madoff	The Henriques/Strom Article reported the allegation by former CFO of Hadassah, Sheryl Weinstein, that she had an affair with Madoff while she was CFO at a time that Hadassah was investing with him.	Madoff was a Trustee and Treasurer of Yeshiva while Yeshiva was investing indirectly with Madoff. J. Ezra Merkin, a principal of a putative feeder fund for Madoff, was a Trustee while Yeshiva was investing through him with Madoff.
Resolution of Potential Conflicts of Interest Involving Madoff	The Henriques/Strom Article reported that Sheryl Weinstein left Hadassah in 1997.	Madoff and Merkin each resigned in all fiduciary capacities from Yeshiva in December 2008.
Extent of Form 990 Disclosure of Assets Exposed for Loss as a Result of Madoff–related Investments	No disclosure of the extent of potential asset loss from Madoff-related investments was included in any note in the May Form 990, although the financial statements audited by KPMG for the fiscal year ended May 31, 2008 (and the fiscal year ended December 31, 2008), disclosed in a lengthy footnote that Hadassah wrote off, as of May 31, 2008, $88,725,362 of carrying value of Madoff-related investments. Disclosure was made in the December Form 990 in a lengthy footnote (substantially similar to those in the financial statements audited by KPMG for the years ended May 31, 2008 and December 31, 2008) that Yeshiva wrote off, as of May 31, 2008, $88,725,362 of carrying value of Madoff-related investments.	Disclosure was made in the Yeshiva Form 990 that Yeshiva wrote off, as of June 30, 2008, $95,290,000 of carrying value of Madoff/Merkin-related investments.
Disclosure of Exposure Potential for Recovery of Assets by Bankruptcy Trustee for Madoff	No disclosure was made in either the May Form 990 or the Dec Form 990 (or the financial statements audited by KPMG for the years ended May 31, 2008 and December 31, 2008) of actual dollar amounts of cash contributions and cash withdrawals made by Hadassah in connection with Madoff-related investments. (The Ain Article and the Henriques/Strom Article reported that Hadassah withdrew more than $130 million from Madoff accounts over the years and a potential for seeking of recovery of withdrawals by the trustee for Madoff.) The Dec Form 990 (as did the financial statements audited by KPMG for both the years ended May 31, 2008 and December 31, 2008), but not the May Form 990, states that Hadassah management was unable to determine whether, or the extent to which, distributions to Hadassah from Madoff-related investments are recoverable by the trustee for Madoff.	A lengthy descriptive paragraph is contained in the Yeshiva Form 990 about Madoff, Merkin and Madoff/Merkin-related investments. There is a disclosure in the Yeshiva Form 990 of actual dollar amounts of cash contributions and cash withdrawals made in connection with Madoff/Merkin-related investments. The Yeshiva Form 990 states that management of Yeshiva was unable to determine whether, or the extent to which, distributions to Yeshiva from Madoff/Merkin-related investments are recoverable by the trustee for Madoff.
Miscellaneous Disclosure Matters relating to Forms 990	The Dec Form 990 states that Hadassah does not make its governing documents or conflict of interest policy available to the public; in the Dec Form 990 for a related Hadassah organization, however, there is a summary of procedures for resolving potential conflicts of interest involving trustees and officers. The Dec Form 990 states that the financial statements of Hadassah are available upon request. The May Form 990 is signed “[u]nder penalties of perjury” by, and after examination to the best knowledge and belief of, the National Treasurer of Hadassah, who is identified as being uncompensated and appears to be a volunteer. The Dec Form 990 does not disclose the officer who signed, but the same National Treasurer signed the Dec Form 990 for a related Hadassah organization.	Public disclosure has been made by Yeshiva that it is revising its conflicts of interest policy in the aftermath of the Madoff scandal. The Yeshiva Form 990 is signed “[u]nder penalties of perjury” by, and after examination to the best knowledge and belief of, the VP and CFO of Yeshiva, who is a compensated full-time employee.

[To be continued in Installment 24]

(With appreciation to Michael J. Kline, Esq., the author of this entry and author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline is a partner with Fox Rothschild LLP, based in its Princeton, NJ office, and a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics)

With the New Form 990, Directors and Trustees Must Now Complete a Complicated Disclosure Form

Thu, 28 Jan 2010 13:30:00 GMT

The IRS completely redesigned Form 990, the Return of Organization Exempt from Income Tax, to be filed for calendar year 2008 and subsequent periods. This Form is filed by most tax-exempt organizations and is open to public inspection. One stated purpose of the makeover was to increase transparency and disclosure of exempt organization operations, thereby improving governance and highlighting conflicts of interest and insider dealings. One major change in the Form is that it requires extensive reporting concerning the organization’s governance and management policies, the independence of its board, and board members’ and key employees’ family and business relationships with each other and with the reporting organization.

Organizations that report on a calendar year basis will already have filed their first year of the new form and at this point should review their information-gathering procedures to identify any needed improvements. Organizations that have a June 30 year-end either will already have filed with the new form for the period ending June 30, 2009 or will be in an extension period for filing. Organizations that have not yet filed the new form should be reviewing their disclosure questionnaires to make sure they are collecting all needed information.

Questions about board members’ and key employees’ family and business relationships with each other have been on the Form 990 in one guise or another in recent years. Section 501(c)(3) organizations have also had to answer generally worded questions about board members’ relationships with the reporting organization. However, on the new Form 990, the questions have become more specifically defined and the detail required to answer them has increased. In addition, for the first time, Form 990 asks about the number of independent board members – with a very specific definition of “independent.” The information needed to determine independence overlaps with, but is not identical to, the information needed to answer the questions about family and business relationships.

What this means is that the reporting organization must seek more personal information than ever before from its board members and other individuals connected with the organization in order to accurately complete the Form 990. Moreover, the current focus of the IRS and the public on tax-exempt organization abuses, and the publicity surrounding the issuance of the new Form 990, will cast a spotlight on organizations’ responses to this form.

The information exempt organizations must now obtain from their board members, officers, and key employees includes:

· Whether they or any of their family members engaged in any business transactions with the organization;

· Whether entities of which they or their families owned more than 35 percent engaged in any business transactions with the organization;

· Whether they do business, other than as a member of the general public, with another board member, officer, or key employee, or with an entity of which another board member, officer, or key employee is a director, officer, or more than 35 percent owner;

· Whether they have a family relationship with any other director, officer, or key employee of the organization; and

· Whether they are a director, officer, or greater than 10 percent owner of an entity of which another of the organization’s directors, officers, or key employees is a director, officer, or greater than 10 percent owner.

A complete list of the required information would run several pages. Also, in some cases, questions must be asked of former board members and officers who are compensated by the organization.

The IRS dictates in the Form 990 instructions and materials posted on the IRS web site that the reporting organization must make a reasonable effort to obtain the information needed to answer these questions. The instructions specify that distributing a questionnaire asking about these matters is sufficient; in other words, the organization need not require documentation, search records, or hire private detectives. Although many organizations already have conflict of interest policies in place, not all organizations currently circulate annual disclosure questionnaires. Of those who do, very few will have existing questionnaires that ask the specific questions needed to elicit the required information. Also, many organizations do not circulate the questionnaire to all the groups (board members, officers, and key employees) that must complete it.

Consequently, many organizations are instituting new procedures to meet this requirement. New questionnaires will need to be prepared and circulated, along with an explanation of why this information is being requested. Persons about whom information will be disclosed on the Form 990 when completed may appreciate knowing, before the Form 990 is filed, what will be disclosed about them. Finally, because some reporting individuals may be unaware of existing, reportable, indirect relationships, the organization should be diligent in review of questionnaires to catch anything that is an indirect business relationship that would otherwise go unreported.

The new Form 990 undoubtedly requires additional effort and intrusive questions to ensure compliance with reporting requirements. On the plus side, much of the information that is gathered can be useful in avoiding the appearance of a conflict of interest in the organization’s decision-making. Respondents should know that the new Form 990 requirements are moving their organization toward best governance practices.

With the New Form 990, Directors and Trustees Must Complete a Complicated Disclosure Form

Thu, 28 Jan 2010 13:30:00 GMT

The information exempt organizations must now obtain from their board members, officers, and key employees includes:

· Whether they or any of their family members engaged in any business transactions with the organization;

· Whether entities of which they or their families owned more than 35 percent engaged in any business transactions with the organization;

· Whether they have a family relationship with any other director, officer, or key employee of the organization; and

A complete list of the required information would run several pages. Also, in some cases, questions must be asked of former board members and officers who are compensated by the organization.

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part I - Installment 22

Fri, 15 Jan 2010 18:37:19 GMT

This is the twenty-second in a series of installments on this blog that are discussing 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 21 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Installment 14 of this series compared and contrasted recent Forms 990 filed with the Internal Revenue Service (the “IRS”) for fiscal 2008 by two of the most significant and respected charities that invested with Madoff: Hadassah, The Women’s Zionist Organization of America, Inc. (“Hadassah”), and Yeshiva University (“Yeshiva”). While the missions of Hadassah and Yeshiva (collectively, the “Charities”) are different, they provide a basis for comparison of transparency, and share as part of their missions the advancement of education and Jewish awareness in the United States and Israel. For disclosure purposes, readers are again advised that the spouse of the author of this blog contributor has been a Life Member of Hadassah for many years.

Because of the decision by Hadassah to change its fiscal year from a year ending May 31 to the calendar year, Hadassah was required to file a Form 990 with the IRS for the seven-month period ended December 31, 2008 (the “December Hadassah Form 990”). The filing by Hadassah of the December Hadassah Form 990 within approximately seven months after having filed its Form 990 for the fiscal year ended May 31, 2008 (the “May Hadassah Form 990” and, collectively with the December Hadassah Form 990, the “Hadassah 2008 Forms 990”) within such a short period has enabled an unusual insight into Hadassah’s public financial disclosure decisions.

These Forms 990 filings come at a time in history when Hadassah has been endeavoring to repair its post-Madoff image. In a widely-reprinted January 2010 Associated Press article by David B. Caruso, Hadassah President Nancy Falchuk was quoted as saying that the group has sought to streamline and refocus itself and that she has worked hard to rebuild the nonprofit's reputation.

Nonetheless, it would appear that positive image-building for Hadassah did not extend to best practices in transparency in the May Hadassah Form 990 regarding its dealings with Madoff. The May Hadassah Form 990 contained no disclosure relative to Madoff investments and distributions for Hadassah.

As stated in Installment 14 of this series, Hadassah did not measure up to the level of transparency regarding Madoff provided by Yeshiva in its Form 990 filing with the IRS for the fiscal year ended June 30, 2008 (the “Yeshiva Form 990”). While Hadassah did not mention its Madoff financial complexities at all in the May Hadassah Form 990, the Yeshiva Form 990 clearly laid out the dollar amounts involved with Madoff. Curiously the contrasting methods of presentation were in Forms 990 whose professional Preparer was the Park Avenue, New York, office of KPMG LLP, and the same professional at KPMG signed all of such Forms 990.

There is an even more perplexing point about the Hadassah 2008 Forms 990 when they are compared to Hadassah’s consolidated financial statements for the fiscal years ended May 31, 2008 and December 31, 2008, with the auditors’ report of KPMG LLP (collectively, the “2008 Financial Statements”). Hadassah is to be commended for voluntarily making the 2008 Financial Statements available to the public on request.

Both of the 2008 Financial Statements contains a note as to the Hadassah/Madoff involvement. The note in the Hadassah December 31, 2008 financial statements about Madoff is substantially the same as the note in the December 2008 Hadassah Form 990. However, the May Hadassah Form 990 was silent as to Madoff, and that Form 990 actually related to the fiscal year in which Hadassah took the substantial write-down in Madoff “assets”. In contrast to the May Hadassah Form 990, the following statement is part of Note (15) Subsequent Events to the Hadassah May 31, 2008 audited financial statements (“Note 15”):

Subsequent to year-end, Hadassah learned that it has been a victim of the fraudulent scheme perpetrated by Bernard L. Madoff Securities LLC (Madoff) which resulted in write-off of an investment amounting to $88,725,362 as of May 31, 2008. Investor statements received from Madoff reported total investments at fair value of $88,725,362 and $80,684,460 at May 31, 2008 and 2007, respectively, and investment return of $8,040,902 and $11,405,448 for the years ended May 31, 2008 and 2007, respectively. . . .

It is puzzling that Hadassah and its Form 990 Preparer would determine not to include in the May Hadassah Form 990 the language of Note 15 when they deemed it material enough to explain the substantial write off in the corresponding 2008 Financial Statements. It is especially perplexing that the contemporary Yeshiva Form 990 for which KPMG LLP was also the Preparer did have a comprehensive note explaining its write-down of investments with Madoff. Again, I believe that Yeshiva has been more successful than Hadassah in using the Yeshiva Form 990 to build new credibility and repair a damaged reputation than Hadassah has done with the Hadassah 2008 Forms 990.

[To be continued in Installment 23]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

IRS Issues Audit Checklist for Exempt Organization Governance

Tue, 12 Jan 2010 13:00:00 GMT

Over the past few years, the IRS has become increasingly interested in monitoring the governance practices of tax-exempt organizations, particularly public charities. This interest has been shown through public statements of IRS officials, the addition of questions about board makeup and policies to the Form 990, an explanation of why the IRS considers governance important, and the development of training materials on governance for IRS personnel. Not all members of the exempt organizations community agree that the IRS should focus on governance. However, the IRS rationale is that a well-governed organization is a tax-compliant organization.

The IRS has now developed and released a governance issues checklist (the Governance Check Sheet) to be completed in each audit of an exempt organization. The checklist provides a very specific roadmap for exempt organizations to compare their practices and policies with what the IRS wants to see and to make adjustments where necessary.

The Governance Check Sheet is a two page document (IRS Form 14114), which is to be used by IRS exempt organization revenue agents in their examination of public charities. The Check Sheet provides questions to be considered by the agent concerning six specific aspects of the organization’s corporate governance structure: (a) “Governing Body and Governance Topics;” (b) “Compensation;” (c) “Organizational Control;” (d) “Conflict of Interest;” (e) “Financial Oversight;” and (f) “Document Retention.” The Check Sheet is designed to be completed by the agent on-line, with drop-down menus of possible responses and very little opportunity for narrative or description.

In addition to the governance questions included in the revised Form 990, the Check Sheet addresses the following points:

· certain organizational document issues (e.g., whether they include an articulation of a charitable purpose, and information about the composition, duties, qualifications and voting rights of board members);

· whether board members have received copies of the organization’s articles and bylaws;

· whether the organization’s articles and bylaws are available to the public, and if so, whether they are generally available or only on request;

· the frequency of board meetings as compared to bylaw requirements;

· whether there is a single individual or small group of individuals to whom the board typically defers;

· the frequency with which the conflicts of interest policy is actually adhered to (e.g., how often have conflicted members actually recused themselves from the corresponding decision making process?);

· the extent to which board members are provided with information concerning the organization’s financial condition and discusses those reports and related financial activities; and

· whether the Revenue Agent’s examination was hindered by a lack of necessary documentation.

Ultimately, the Check Sheet data will be included in a long-term study the IRS is undertaking to set forth a greaterunderstanding of the connection between charities’ tax compliance and corporate governance practices.

At this point, the IRS is not expected to make poor governance practices alone an exemption level issue, but it is conceivable that evidence of problematic governance may contribute to the consideration of penalties where evidence of more severe organizational abuse exists.

Year-end Advice on Obtaining 2008 Forms 990 by Charity Stakeholders - Installment 21

Wed, 23 Dec 2009 19:06:53 GMT

This is the twenty-first 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 20 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Installment 19 of this series pointed out that Monday, November 16, 2009 was a critical day for Section 501(c)(3) public charities and private foundations (collectively, “501(c) Entities”) with a calendar fiscal year. It was the final day on which such 501(c) Entities could file their Forms 990 and 990-PF (collectively, “Forms 990”) with the Internal Revenue Service (the “IRS”) for calendar year 2008 on a timely basis to avoid possible IRS penalties.

There were reports that there was such a high volume of Forms 990 filed electronically with the IRS that day that some charities experienced substantial delays in their filing efforts.

Installment 19 also pointed out that over the course of the next several months it will be interesting and informative to visit www.guidestar.org to review and analyze the 2008 Forms 990 filings as they are posted. Many calendar year Forms 990 have not yet been posted on www.guidestar.org, presumably because of the crush of last minute November filings,

Nonetheless, for those who want or need to get the Forms 990 information immediately, including potential donors who want to make decisions about 2009 charitable gifts, there are other alternatives. Generally the IRS says that the Forms 990 copies should be made available by the 501(c)(3) Entity for public inspection and copying on the same day if the request is made by appearing in person at the principal offices of the charity. The charity has up to thirty (30) days to respond to written requests made by regular mail, e-mail, facsimile or private delivery. The charity is allowed to charge for actual postage and modest copying fees.

A request for Forms 990 made at the principal headquarters of 501(c)(3) Entities should get a prompt response within 24 hours. Many charities are highly sensitive to their obligations to make Forms 990 available and may even respond within a day to a telephone, facsimile or e-mail request.

Other 501(c)(3) Entities may be unaware of their Forms 990 public inspection responsibilities or may even be evasive or unwilling to provide the Forms 990. Potential donors should have a healthy skepticism about such behavior and can advise the IRS, if necessary. 501(c)(3) Entities can be subject to IRS penalties and potential adverse publicity for failure to respond promptly.

Best wishes to all for a happy and healthy holiday season.

[To be continued in Installment 22]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 17 Nov 2009 14:10:16 GMT

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]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

Another Revisit to Madoff and His Charity Stakeholders - Lautenberg Private Foundation Suit vs. Peter Madoff - Installment 15

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 15 Sep 2009 20:45:03 GMT

This is the fifteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Bernard”). Installments 3 through 8 and Installments 10 and 14 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 promptly to have their positions evaluated.

A Cliffview Pilot report on September 15, 2009 by Jerry DeMarco reported that U.S. District Judge Stanley Chesler in Newark declined to dismiss a lawsuit brought by two children of, and the private charitable foundation (the “Foundation”) formed by, Senator Frank Lautenberg, who was its President. The claims in the lawsuit include allegations that Peter Madoff violated the Securities Exchange Act of 1934 by failing to disclose to investors that the company of his brother Bernard was engaged in a fraud. The plaintiffs are claiming losses aggregating almost $9 million.

Concerns about the profound financial and other impacts on charities, both public and private, from investments with Bernard were published soon after the Bernard scandal became public in December 2008. See, for example, “Charities Now Seek Bankruptcy Protection,” by Stephanie Strom in The New York Times on February 20, 2009.

The progress of the lawsuit brought by the Foundation raises several interesting points, some of which were discussed in previous Installments of this blog series.

First, it does appear that actions brought against other members of the Madoff family than Bernard may bear some fruit, separate and apart from the much-publicized Bernard bankruptcy proceedings in New York. Query whether the preliminary success of the Foundation will spur other stakeholders to sue members of the Madoff family, thereby exposing them to the potential for very large claims that could precipitate bankruptcy filings for them as well.

Second, as was discussed in an earlier Installment, private foundations such as the Foundation and their managers have potential liability for excise taxes that may be levied by the Internal Revenue Service (“IRS”) for improvident investing. Query whether success in the lawsuit would generate a compelling argument for the Foundation and its managers for avoidance of the excise taxes because of the alleged securities fraud. Alternatively, if the lawsuit is lost by the Foundation, does it increase the potential for success by the IRS in possibly imposing excise taxes on the Foundation and its managers?

Third, a check of the charity information website Guidestar indicates that the Form 990-PF of the Foundation for the 2007 calendar year was filed with the IRS on August 15, 2008. The Form 990-PF for the Foundation for 2008 has not yet been posted on Guidestar. The nature and extent of disclosures that will be made regarding the Foundation in its 2008 Form 990-PF should be illuminating about the litigation, financial status and contingencies respecting the Foundation.

[To be continued in Installment 16]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: A Tale of Two Forms 990 - Installment 14

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 25 Aug 2009 19:23:33 GMT

This is the fourteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff. Installments 3 through 8 and Installment 10 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. It generally advocated that every charity should respond pro-actively in the wake of the Madoff scandal and the current adverse economic climate. Such action should include a filing of its Form 990 with the Internal Revenue Service (the “IRS”) as promptly as practicable with appropriate disclosures, whether or not it was a Madoff stakeholder itself. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

This Installment 14 is designed to compare and contrast the most recent Forms 990 filed with the IRS for fiscal 2008 by two of the most significant and respected charities that invested with Madoff: Hadassah, The Women’s Zionist Organization of America, Inc. (“Hadassah”) and Yeshiva University (“Yeshiva”). While the missions of Hadassah and Yeshiva (collectively, the “Charities”) are different, they provide a basis for comparison, and share as part of their missions the advancement of education and Jewish awareness in the United States and Israel. For disclosure purposes, readers are advised that the spouse of the author of this blog post has been a Life Member of Hadassah for many years.

Concerns about profound financial and other impacts on these Charities from their investments with Madoff were published soon after the Madoff scandal became public in December 2008. For example, an article by Stewart Ain entitled “Hadassah Reveals $130 Million Windfall from Madoff,” was published in The Jewish Week on January 14, 2009 (the “Ain Article”). A more recent article on Hadassah and its involvement with Madoff that contains some is “Woman Tells of Affair with Madoff in New Book,” by Diana B. Henriques and Stephanie Strohm, published in The New York Times on August 14, 2009 (the “Henriques/Strohm Article”). An article about the impact of Madoff on Yeshiva entitled “Betrayed by Madoff, Yeshiva U. Adds a Lesson,” by Javier C. Hernandez was published in The New York Times on December, 23, 2008 (the “Hernandez Article”).

Several weeks ago, the charity information website Guidestar posted the Hadassah Form 990 for the fiscal year ended May 31, 2008 (the “2007 Hadassah Form 990”). This past weekend the Website posted the Yeshiva Form 990 for the fiscal year ended June 30, 2008 (the “2007 Yeshiva Form 990” and collectively with the 2007 Hadassah Form 990, the “2007 Forms 990”).

This blog series has already covered the newly-designed Form 990 for 2008 (the “2008 Form 990”) that requires 501(c)(3) entities to provide greatly expanded disclosure through answering questions that require “yes” or ‘no” responses about governance and business operations of charities. Questions that are answered “no” require explanation in the 2008 Form 990.

One of the questions for each of the Charities that would have required a response in the 2008 Form 990 (but not the 2007 Forms 990 recently filed with the IRS by the Charities) is whether the respective Board of Trustees and Audit Committee reviewed the 2007 Form 990 prior to its filing with the IRS. Because both Hadassah and Yeshiva have fiscal years other than the calendar year, they were able to use the old Form 990 for 2007.

Some circumstances differ, and some are similar, for the Charities. As will be shown in the table below, it is my view that the 2007 Yeshiva Form 990 has significantly greater disclosure and transparency relative to Madoff than the 2007 Hadassah Form 990. Either of the divergent approaches to disclosure chosen by each of the Charities in its 2007 Forms 990 may be compliant and supportable and were reviewed by the same “Big Four” accounting firm. However, this blog series has strongly recommended that early and complete transparency is advisable to maximize the value of utilizing the Form 990 in rebuilding public confidence in a charity that was affected by Madoff. Earlier disclosure will also get the “bad news” out into the open faster and allow the charity to move on. I believe that Yeshiva has been more successful than Hadassah in using its 2007 Form 990 for this purpose.

The following table will highlight a comparison of some of the relevant factors drawn from the respective 2007 Forms 990 of the Charities that led to the views of the author.

A COMPARISON OF HADASSAH AND YESHIVA 2007 FORMS 990

(Information in the Hadassah and Yeshiva columns is from their respective 2007 Form 990 unless otherwise noted; readers may access the 2007 Forms 990 by visiting Guidestar and completing a free online registration. Other noted sources in the table have the Internet links designated in the foregoing article.)

CATEGORY	HADASSAH	YESHIVA
Fiscal Year End	May 31, 2008	June 30, 2008
Date of 2007 Form 990	April 3, 2009	May 14, 2009
Final Due Date for 2007 Form 990 Filing with IRS, Including All Allowed Extensions	April 15, 2009	May 15, 2009
Office where financial books are kept	500 West 185^th Street New York, NY 10033	50 West 58^th Street New York, NY 10019
Paid Preparer of 2007 Form 990	KPMG LLP 345 Park Avenue New York, NY 10154-0102	KPMG LLP 345 Park Avenue New York, NY 10154-0102
Potential Conflicts of Interest Involving Madoff	Recent allegation by former CFO of Hadassah, Sheryl Weinstein, that she had an affair with Madoff while she was CFO at a time that Hadassah was investing with him	Madoff was a Trustee and Treasurer of Yeshiva while Yeshiva was investing indirectly with Madoff; J. Ezra Merkin, a principal of a putative feeder fund for Madoff, was a Trustee while Yeshiva was investing through him with Madoff
Resolution of Potential Conflicts of Interest Involving Madoff	Sheryl Weinstein left Hadassah in 1997, 12 years ago	Madoff and Merkin each resigned in all capacities from Yeshiva in December 2008
Extent of Disclosure of Assets Exposed for Loss as a Result of Madoff–related Investments	No disclosure of extent of potential asset loss from Madoff-related investments in 2007 Form 990; The Ain Article and the Henriques/Strohm Article reported that, while Hadassah had a loss of assets from Madoff-related investments of $90 million, it had withdrawn $130 million over the two decades of investment with Madoff	Disclosure that Yeshiva wrote off, as of June 30, 2008, $95,290,000 of carrying value of Madoff-related investments
Disclosure of Exposure Potential for Recovery of Assets by Bankruptcy Trustee for Madoff	None apparent in 2007 Form 990; The Ain Article and the Henriques/Strohm Article reported that Hadassah took out more than $130 million from Madoff accounts over the years with the potential for seeking of recovery by trustee	2007 Form 990 indicated inability of Yeshiva management to determine whether distributions from Merkin-related investments that were turned over to Madoff are recoverable by the trustee for Madoff
Miscellaneous Disclosures in 2007 Form 990	Effective as of January 2009, Hadassah changed its fiscal year to a calendar year, thereby making it necessary for Hadassah to file a 2008 Form 990 with the IRS for its short seven-month year ended December 31, 2008, no later than November 15, 2009, including all permitted extensions	Lengthy descriptive paragraph in note to financial statements about Madoff, Merkin and Madoff-related investments

[To be continued in Installment 15]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

Tax-exempt organizations - the IRS wants you to think about record retention policies

awellsmi@quarles.com (Angela Wellsmith) — Thu, 26 Mar 2009 19:08:20 GMT

Commenting on tax forms, Albert Einstein once said, "This is too difficult for a mathematician. It takes a philosopher."

Einstein might appreciate the latest changes in filing for tax-exempt organizations. In an attempt to foster transparency and ease the filing organization's administrative burden, the IRS recently redesigned the Form 990 (the annual information return that most tax-exempt organizations are required to file). The redesign asks a variety of questions regarding the filing organization's governance, including the question, "Does the organization have a written document retention and destruction policy?"

Although a portion of the new governance section "asks [for] information about policies and practices that are not required by federal law," the Sarbanes Oxley Act imposes criminal liability on organizations, including tax-exempt organizations, that destroy records with the intent to obstruct a federal investigation. Many tax-exempt organizations have responded to the Sarbanes Oxley Act by adopting and implementing record retention policies. The IRS recommended that organizations "review[...] the new governance questions, which generally must be answered based on policies and practices in place on or before the last day of the 2008 tax year."

If your organization must check the "no" box for 2008 , consider implementing a policy for the 2009 tax year. Whether your organization deals with mathematicians, philosophers or neither, it's good business practice for your tax-exempt organization.

IRS Issues Instructions for New Form 990

joewallin@dwt.com (Joseph M. Wallin) — Fri, 22 Aug 2008 05:26:56 GMT

The IRS has issued instructions for the redesigned Form 990, which must be used starting with tax year 2008. The revised instructions can be found here.

Recent Articles tagged form 990 from LexMonitor

Form 990 Makeover, Version 2.0

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part II - Installment 23

With the New Form 990, Directors and Trustees Must Now Complete a Complicated Disclosure Form

With the New Form 990, Directors and Trustees Must Complete a Complicated Disclosure Form

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part I - Installment 22

IRS Issues Audit Checklist for Exempt Organization Governance

Year-end Advice on Obtaining 2008 Forms 990 by Charity Stakeholders - Installment 21

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

Another Revisit to Madoff and His Charity Stakeholders - Lautenberg Private Foundation Suit vs. Peter Madoff - Installment 15

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: A Tale of Two Forms 990 - Installment 14

Tax-exempt organizations - the IRS wants you to think about record retention policies

IRS Issues Instructions for New Form 990