I have dissolved a scholarship fund and have requested that the balance be refunded to me. The director told me that it could not be done because it would violate the rules of Section 501(c)(3). Is this correct?
Basically, yes. A fundamental IRS requirement for 501(c)(3) charitable status is a provision in the governing documents that upon dissolution of the organization all of the remaining net assets must be transferred for other charitable purposes. (See Ready Reference Page: “Articles of Incorporation Establish Basic Form of Nonprofit Corporations.”) If the fund is a separate charitable organization, it would not be permissible to refund any money to you.
If the scholarship fund is one of many held by another organization, such as a university or a community foundation, and assuming that you donated the money, it was most likely an irrevocable gift when made and cannot be given back to you. It must have been an irrevocable gift if you took a charitable contribution deduction for it. The directors of the organization have a fiduciary duty to the organization to assure that it is used for charitable purposes.
There are occasional cases where, because of mistake or some sort of serious controversy, charities have agreed for business reasons to return gifts to disgruntled donors. But the directors often obtain approval of the Attorney General to protect themselves from claims of breach of fiduciary duty to the organization. And the amount received by the original donor has to be treated as income to the donor in the year of receipt.
Wednesday, February 28, 2007