How To Help Foundations From Being "Madoffed"

Now is an excellent time for foundation managers and those who advise them to review the laws and latest decisions governing their investment decisions. An investment can subject a foundation and its managers to penalties under both federal tax law and state law. Under federal tax law, investments t...

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Bibliographic Details
Published inTrusts & Estates Vol. 148; no. 5; p. 24
Main Authors Leibell, David T, Johnson, Phyllis Maloney
Format Trade Publication Article
LanguageEnglish
Published New York Informa 01.05.2009
Subjects
Asset acquisitions
Commodities trading
Decision making
Excise taxes
Fines & penalties
Foundations
Hedge funds
Investment advisors
Investments
Limited partnerships
Pyramid operations
Tax legislation
Tax rates
Trusts
United States > US
Online AccessGet full text
ISSN0041-3682

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Summary:Now is an excellent time for foundation managers and those who advise them to review the laws and latest decisions governing their investment decisions. An investment can subject a foundation and its managers to penalties under both federal tax law and state law. Under federal tax law, investments that jeopardize a foundation's ability to carry out its tax-exempt purposes are subject to a significant excise tax, as are a foundation's excess business holdings. Transactions that are the result of self-dealing are likewise subject to hefty penalties. The Internal Revenue Manual (IRM) lists the following "more recent strategies that deserve close scrutiny:" investment in "junk" bonds, risk arbitrage, hedge funds, derivatives, distressed real estate, and international equities in third world countries. The IRM also highlights guarantees and collateralizations as investment activities warranting close scrutiny. As painful as the penalties can be, it does take some doing for foundation managers to be deemed liable.
ISSN:0041-3682