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What can I do?

I have given about $50,000 over the past few years to an organization that I thought was a nonprofit, a 501(c) organization. I have come to find out it is not. What can I do?

It is not clear what type of organization this actually is. Being nonprofit is not synonymous with tax-exempt, and 501(c) is not synonymous with charity, to which donations are tax-deductible.  (See Ready Reference Page: “What Do We Mean When We Say ‘Nonprofit’?”) If the organization is 501(c) but contributions to it are not deductible, and if it normally has income of more than $100,000 a year, it is required to notify every donor that contributions are not tax-deductible if it solicits gifts in writing or by printed materials, television, radio or telephone in a coordinated campaign soliciting more than 10 persons during the year.  If that is the case, the IRS may be interested.

The primary issue seems to be the circumstances of the gifts. Did this person say or suggest that the organization was a charity or that the funds were to be used for a charitable purpose?  If so, and if you are in one of the 39 states or the District of Columbia that has a charitable solicitation registration requirement, it is likely (assuming this isn’t a “church”) that he would have to be registered to ask for money.  Your state attorney general should be interested.  Even if you aren’t in one of the registration states, you may still have a case for misrepresentation that could interest your state attorney general or local prosecutor or provide the basis for a private action against him.  Consult an attorney if you think there might be a chance to recover the funds.

You may need to amend your personal income tax returns if you claimed a charitable contribution deduction for the gifts.  And in the future, do real due diligence on any organization to which you are considering a gift if you want to be confident that the funds will be used as you expect and that you will be able to take a charitable contribution deduction for the gift.

Tuesday, September 13, 2011

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