Madoff stashed $182 million in his nonprofit foundation as tax ploy

Madoff stashed $182 million in his nonprofit foundation as tax ploy

Bernie Madoff took advantage of his nonprofit foundation to stash nearly $200 million in its “capital gains” category, his tax returns for 2007 indicate.

Tax records for the Madoff Family Foundation perused by the Voice indicate that in the past two years, it sheltered a soaring amount of funds while handing out to charities a sharply decreasing amount of money.

Previous media reports on the foundation have focused on its total assets, which were $16 million in 2007, but ignored (as far as I can tell) the capital-gains-and-losses category, which in the past two years has reported more than 10 times that amount.

Parking money in the category of capital gains and losses in nonprofits — instead of listing the activity on personal or corporate returns — can lighten a taxpayer’s burden. The foundation’s tax returns over the past several years indicate that it received tax breaks anyway from sheltering investment income.

As one can see from the above snippet from page 3 of the 501(c)(3) foundation’s 2007 tax return (filed May 5, 2008), Madoff parked more than $180 million in the nonprofit’s category of “Capital Gains and Losses for Tax on Investment Income” during calendar year 2007.

At the same time, the foundation — despite Madoff’s heralded philanthropic reputation — donated a total of only $95,000 to charities that year.

The previous year, 2006, Madoff squirreled away slightly less ($164 million) in the category but donated $1,277,600. In other words, the foundation’s charitable donations dropped by 93 percent from 2006 to 2007.

That sharp drop indicates that Madoff may have known months before the scheme fell apart that he was coming to the end of his self-admitted Ponzi scheme. The tax return for 2007, during which he donated only $95,000, was filed in May 2008. He reportedly confessed the scheme to his sons near the end of 2008.

Bernie himself was listed as the foundation president and keeper of its books; his wife, Ruth, was secretary-treasurer. Bernie signed the tax return. Their sons, Andrew and Mark, aren’t listed; they have their own foundations.

The tax returns, by the way, also indicate that the foundation’s net in capital gains fell from $4.2 million in 2006 to $1.4 million, perhaps reflecting the weakening stock market — or perhaps just his manipulation of the figures.

The shifting of large amounts of money into the nonprofit foundation’s capital-gains category appears to have been recent: In the foundation’s tax return for calendar year 2005, the category was left blank, while its charitable donations totaled $303,700.

The foundation’s charitable donations were erratic in size, in contrast with the unbelievably consistent returns he claimed to have made for his investors. In 2004, the foundation gave away $5.6 million; in 2003, $6.5 million; in 2002, $522,000; in 2001, $600,000. Even at their height, the foundation’s charitable donations were no more than a small fraction of the money he was taking in, the records indicate.

The sharp drop in his foundation’s donations to charities from 2006 to 2007 (from $1,277,600 to $95,000) was noted by Fox News’s Roger Friedman immediately after the scandal broke in mid-December, but its possible significance — and the huge amount of squirreled-away investment income that dwarfed the foundation’s total assets — have been lost amid other angles of the massive scandal.

It’s not known whether Irving Picard, the court-appointed liquidator of Madoff’s scheme, has extracted any capital gains or tax savings realized by the foundation. Hundreds of millions have been clawed back from various other Madoff accounts at banks and investment houses, other outlets have reported.

It’s also unclear which of Madoff’s operations parked the money in the foundation — the tax return says only, “B.L. MADOFF—INFO UPON REQUEST.”

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