The president of our 501(c)(3) organization has an interest in a social issue that has no part of our 501(c)(3). He insists that he can collect donations using our tax id number for his own social interest organization/movement. As CEO of our organization, I think that this is an illegal use of our status. He argues that it is legal as long as he gives some of the collected funds to the original 501(c)(3). Who is right?
It would normally be a state law misrepresentation to raise funds for a 501(c)(3) charity with the intent to use the funds for an unrelated purpose. The fact that not all of the funds are so used does not change the fundamental misrepresentation.
Ultimately, this is not a question for the president alone. If the board likes the idea and it is a charitable cause, the board could expand the mission and make it OK to use general funds for expanded purposes. If the purpose is not charitable, the organization could face some federal tax issues if it supports a substantial non-charitable activity. And if he openly seeks funds through your charity for a non-charitable purpose, the contributions may not be deductible by the donors.
If the board doesn't like what the president is doing, it could provide that someone else be responsible for all of your solicitations, or even remove the president from office. The standard for removing an officer from office is usually if the board thinks it is in the best interests of the corporation. The standard to remove a director may be more restrictive, but if he is removed from office, he may get the point.
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