Senate Aide Says IRS Could Question Board Members Over Madoff Investments

A top Senate aide says the Internal Revenue Service might have grounds to tax board members of private foundations who placed all of their organizations’ assets with Bernard L. Madoff, the investor who allegedly ran a $50-billion pyramid scheme.

Under Section 4944 of federal tax law, foundations and their officers, directors, and trustees can be liable for tax if the organizations make any investments that would financially jeopardize the carrying out of the foundations’ work.

“I’d be curious to know if any of those foundations [that placed all assets with Mr. Madoff] considered the impact of Section 4944 before they made those investments,” said Theresa Pattara, tax counsel to Republicans on the Senate Finance Committee. “It would be fair to ask for board minutes, the thought processes, and the decision making they went through before putting all their money at risk.”

The Madoff scandal may prompt Congress to make a second attempt to require charities, as well as foundations, to abide by prudent-investor rules. In 2004, staff members on the Senate Finance Committee proposed expanding the rules to all public charities.

In a statement, the senior Republican on the finance committee, Sen. Charles E. Grassley, said that he might try again this year to apply the rules to charities. “Better transparency of investments might help to prevent this kind of mess in the future,” said Mr. Grassley. “It may be time to re-examine that reform.”

See The Chronicle’s full story on board members’ potential liability related to Madoff investments.