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May foundation refuse to return gifts not used for restricted purpose?

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May foundation refuse to return gifts not used for restricted purpose?

Donors made donations to a nonprofit foundation that were restricted for the purpose of securing a building property. The foundation declared that it would not be able to secure the property and asked the donors to allow them to re-allocate the funds to other purposes.  Some donors requested that their funds be returned, but the foundation has refused. Can the foundation legally refuse to refund the restricted donation when the funds will not be used for the purpose intended?  

A nonprofit that receives funds for one purpose may not use the funds for another purpose without the consent of the donors.  In Pennsylvania nearly 20 years ago, the CEO of a charitable hospital system was convicted of taking funds entrusted to the hospitals for education and research purposes and misusing them to pay general obligations of the hospitals before they filed for bankruptcy. 

The organization can certainly ask for a waiver on the purpose of the gift, but if the donors don’t agree, the organization cannot use the money for another purpose.  The state Attorney General would be interested if the organization goes ahead and misuses the funds.

Tuesday, September 18, 2018

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Comments

Our school solicited funds at our annual charity event to build a new building for our middle school. They provided donors with building plans and a video of what the school would look like. Five months later, they have scrapped plans for the new building and are, instead, leasing a building and renovating it without the consent of the donors for the new building. Do I have standing to ask for my donation back?

You can always ask, but in most states the rule is probably that only the Attorney General has legal standing to actually seek to enforce the restriction imposed upon the use of the funds because of the purpose set forth in the solicitation.  Many organizations will give themselves some wiggle room in the solicitation to say that the funds will be used for some other purpose in support of the organization if the plan to build a new building does not work out.  Without such wiggle room, however, the organization may not use the funds for a different purpose without getting approval from the Attorney General or perhaps from a court.  The Attorney General should be interested in a situation where a charity ignores the conditions placed on a contribution. --Don Kramer

 

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