Article Archives >> To the Point

What court cases or IRS rulings, if any, define restricted funds?  Can an officer of a charity restrict funds by saying at a fund raiser that funds raised at the event will be used for a certain purpose, or must the donor state explicitly a restriction on the use of the funds?

You could write a treatise on this one.  First, the IRS generally does not concern itself with whether or not funds are “restricted.”  This is normally a matter of state law.  Each state will have its own case law or statutes to support the concept.  You can find working definitions in the Financial Accounting Standards Board (“FASB”) materials such as its Standard No. 116 on accounting for contributions. These apply for financial accounting purposes, but generally reflect the state of the law.

Generally, funds are ‘restricted” when a donor places restrictions on their use.  Typically, there are two types of restrictions—permanent or temporary. 

Permanently restricted funds are those for which the donor says the recipient must retain the assets permanently but may spend some or all of the income for specified purposes.  The Uniform Management of Institutional Funds Act, adopted in some form in most states, has separate rules for handling this type of funds, which it calls “endowment.”  (See Ready Reference Pages:  “UMIFA Sets Rules for Charitable Endowments” and “New UPMIFA Sets Rules for Management of Charitable Funds.”)

Temporarily restricted funds are those for which the donor says they must be used only for a specific purpose or after a certain period of time.  The income from permanently restricted funds can be temporarily restricted by requiring that it be used for certain purposes.  Your question implies that the funds solicited at the event will be temporarily restricted for a certain purpose.

The key to restriction is that it must be donor-placed.  Boards, acting alone, cannot normally create legally enforceable restrictions.  If, however, a charity solicits funds for a specific purpose, it is generally believed that gifts made for that purpose become restricted for that purpose because the donor, by contributing for the purpose, has adopted the restriction. 

Most charitable solicitation registration laws require a charity to use funds for the purpose for which they are solicited.  That is one reason why solicitations ought to include broad charitable use language as well as specific intent.  If you get more than you can use, or if the project changes, you can still use the funds for general charitable purposes.

It sounds in your case as though you ought to treat the funds as temporarily restricted.  You may run serious risks if you don’t.

April 29, 2009

Article Archives >> To the Point

Legal Issues in Volunteer Involvement:
Maximizing the Benefits, Minimizing the Risks

Pre-recorded Webinar -
Listen Today

This pre-recorded webinar discusses: risk management and the organization's liability for the acts of volunteers; legal responsibilities in screening and placing volunteers; liability for harm to volunteers; applicability of volunteer protection statutes and workers' compensation statutes; insurance coverage and indemnification issues; applicability of employment discrimination laws; and more. The session also discusses confidentiality, protection of intellectual property, volunteer contracts, and ways to minimize risk through training and supervision. Learn to balance the risk of possible problems against the risk of turning away valuable volunteer support.

Learn More

Receive the weekly question by e-mail

Sign up and receive FREE:

Weekly question and answer

Notice of each full edition
and its free stories

Report on 501(c)(3) electioneering


What our readers say about Nonprofit Issues

Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.

Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.


Have a question?

If you can't find your answer, submit a question and Don will pick one question a week to answer online and to include in our weekly e-mail notice.

Other ways to
find answers:

Talk to the Editor
Next Conference Call:
Thursday, October 23, 2014

Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.

Access the entire site
($9.95/24 hours, $17.95/3 months).


Nonprofit Issues Live
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.

Speaking Engagements
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.

None of the information on the Nonprofit Issues Website should be deemed legal advice or
should be acted upon without prior consultation with appropriate professional advisors.
Materials prepared by Nonprofit Issues contained in these pages is copyrighted by Nonprofit Issues, Inc., 2009-2012.

Home | Article Archives | Ready Reference | Ask the Editor | Bookstore | About Us

Change Profile/Password
Subscribe or Renew

Free E-notice

Nonprofit Issues, Inc.
P.O. Box 482
Dresher, PA 19025
(215) 542-7547 FAX (215) 542-7548

E-mail Us