More than 150 private foundations invested with Bernard Madoff, and their losses have forced several charities to close. But the effects of this investment travesty could live on.

The IRS is looking into whether excise taxes apply to private foundations and their board members who placed up to 100% of their portfolio assets with Madoff. These taxes would be based upon the Internal Revenue Code provision that excise taxes can be assessed on a private foundation and its board for making investments that jeopardize the charitable purpose.

William Josephson, former head of New York State’s Charities Bureau, told the U.S. Senate Finance Committee that it would make public policy sense to apply to public charities some of the additional restraints that already are on private foundations. This pertains to activities such as self-dealing, excess business holdings and jeopardy investments.

Similar discussions have come up in the Senate Finance Committee in the past. And in light of the recent scandal, greater regulation of charitable organizations’ investments is likely.

The IRS has had to come up with a plan to determine how many of the 650,000 tax-exempt organizations in its master file are still in existence.  Because organizations with gross receipts under $25,000 aren’t required to file, the IRS isn’t sure which charities are still in existence but under the filing threshold and which charities are nonexistent. To help clean up their master file, charities that normally have annual gross receipts under $25,000 were required to file Form 990-N (the E-postcard) with the IRS starting in 2008, according to the Pension Protection Act of 2006.

GuideStar, a provider of nonprofit information, predicts that approximately half a million nonprofit organizations could lose their tax-exempt status on May 15, 2010, due to lack of filing the 990-N. Although no penalties are assessed for filing the 990-N late, the IRS states that organizations will lose their tax-exempt status if they fail to file for three consecutive years (that is, 2008, 2009 and 2010). Once an organization loses its tax-exempt status, it must reapply and pay the user fees to have its tax-exempt status reinstated.

If you sponsor a 403(b) plan, you now have a little more time to get a written policy in place. When 403(b) plan regulations were finalized in July 2007, plan sponsors were required to put in place a written plan of the requirements by Jan. 1, 2009.

The IRS now says it will not treat a 403(b) plan as failing to meet the requirements if the plan’s sponsor adopts a written plan intended to satisfy the regulations on or before Dec. 31, 2009, as long as the sponsor operates the plan with a reasonable interpretation of the final regulations during all of this year.

Also, before year end, you must make your best efforts to retroactively correct any operational nonconformity to the written plan, such as doing catch-up contributions.

The IRS is continuing its education and enforcement program on political campaign activities by nonprofits. It’s reminding charities that, as the Internal Revenue Code states, they aren’t allowed to participate in, or intervene in, any political campaigning on behalf of, or in opposition to, any candidate in public office. Nonprofit organizations, other than charities, that participate in political campaign activities should discuss the activities with their accountants to ensure that all of the organization’s filing requirements for the political activity, if any, are being met.