We are a nonprofit parent teacher association that has 501(c)(3) recognition. We are not tax-exempt. We fundraised $50,000 for a spring trip to Washington that was canceled by our district. Each family did individual fundraising to cover the cost of their trip. Can I give that fundraised money back in the form of cash or would I be able to deposit it into the child's lunch account? I don't think it's right that I hold all that money in a general fund to use towards next year’s trip when the kids/parents that fundraised that money will not be going. What should I do?
It is an oxymoron to say you are 501(c)(3) but not tax-exempt. A 501(c)(3) charitable organization, by definition, does not have to pay federal income tax (i.e. is tax-exempt) and charitable contributions to it are deductible. Gifts made to the PTA earmarked to cover the trip costs for specific families, however, are not considered charitable because they are not for the benefit of the student body generally. You should be telling your donors that such gifts are not deductible, and you are legally required to do so if you raise more than $100,000 a year. I don’t know whether your statement that you are not tax-exempt means that you were soliciting for what you told your donors are non-deductible gifts.
If your solicitors (the families) have told your donors that the gifts are for the benefit of a specific family and are not deductible, I would suggest that you have the families ask their donors if they want the money back or want to leave it for the benefit of students taking the trip in future years. If they want to leave it, I would give them an acknowledgment so that they can claim their deduction. If you have not been telling donors that the gifts are not deductible and have given donors a receipt acknowledging the gift which they can use to claim a charitable contribution deduction, I would keep the funds for future students in future years. I would not give it to the students’ individual lunch accounts because that would invalidate the deduction.
You should also be careful in future years about the accuracy of your solicitations so that you are not in violation of the misrepresentation prohibitions in any applicable charitable solicitation registration law. Asking for money to help kids take a school trip to the nation’s capital would be a “charitable appeal” bringing you under the provisions of the acts, even if the gifts are not deductible. You want to be sure that you are not misrepresenting the deductibility.