The proper use of the funds is a matter of state law and is not controlled by an IRS Revenue Ruling. The elders may think they can use the funds for other purposes because the campaign literature recited a broader purpose, a technique many charities use to assure that they won’t be caught in this kind of trap. But if there was no broader purpose advertised, it would probably be a breach of fiduciary duty, and may be a criminal act, to use funds for a purpose other than that for which they were given.

 

The cy pres doctrine allows a charity to use funds as nearly as possible for the purposes given if circumstances have so changed that it is impossible or impractical to use the funds as designated by the donor. Although a living donor may generally waive the restrictions on a gift, invoking the cy pres doctrine normally requires approval of a court, or at least the Attorney General, and is not a unilateral power of the Board. 

 

A charity will occasionally return funds that cannot be used as designated by the donor. If you do get your money back and you have claimed a charitable contribution deduction on a prior income tax return, you should include the returned funds as income in the year of their return.