Exercise Restraint on the Excise Tax

Things just keep getting worse and worse.


According to The New York Times, foundations who invested with Bernard Madoff may be subject to additional loss in the form of an excise tax. This tax is meant to ward off potentially risky investments by funders and to encourage exercising a thorough vetting process for identifying investors.

The financial implications can be huge. For example, if the IRS enforced this tax in the current scenario, the following could happen:

"The penalty can equal 10 percent of the amount invested during the tax year in question. If the foundation fails to try to recover the funds, there is an additional 25 percent penalty. The foundation’s officers, directors and trustees also face a 10 percent penalty, and a 5 percent additional penalty if they ignored red flags or did not thoroughly vet Mr. Madoff’s investments and proposals."

But with the huge losses of many foundations, particularly those that invested heavily with Madoff, what's 25% of $0?

Though the IRS has yet to make a definitive decision on whether or not to enforce this tax, I can only hope that this situation is given special consideration. This scandal was clearly a huge shock to everyone involved and seems to be a fairly isolated one.

Point blank: The philanthropic community is in need of redemption. And additional slashes to what little assets remain is not the solution...