Designated/Restricted Contributions (For you Non-Profit Experts)

[JohnH]

A valid 501(C)3 organizes short-term mission trips overseas.  These are not disguised vacations - they are valid mission trips.  Volunteers raise funds from third parties and also give personal funds toward paying their individual travel/lodging expenses and in-country group overhead for the team. The gifts are treated as tax-deductible "temporarily restricted" gifts. All contributions are assigned to specific trips and all donors are easily identifiable.

Due to political upheaval in the host country, a mission trip must be canceled in the interest of safety of the volunteers and also safety of the in-country hosts.  Can the organization return the gifts to the donors without jeopardizing its non-profit status?

 

Edited June 1, 2015 by JohnH

[kcjenkins]

Not my area of expertise, but maybe this might help.

http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Audit-Process

 

 

[JohnH]

Thanks KC.  That was helpful, but I'm still researching several avenues, both tax-focused and also non-profit specific.   It's surprising how little definitive info is out there regardiing this issue.

Edited June 2, 2015 by JohnH

[Margaret CPA in OH]

There are several pages in "Church and Clergy Tax Guide" that address this issue, too many to reprint here.  I would be happy to read some of this to you if you like or perhaps you can access the material elsewhere.  I purchase this resource as a business expense as I do have clergy clients and advise my own church.  PM me if you would like to pursue this from the resource I mentioned.

[ILLMAS]

I'll share this with you, a non-profit agency had a signed agreement with donor to specific work (restricted grant) they were suppose to do and accomplish by a certain date.,  By the time it came to submit the report to the donor, the agency found out they had double dipped on salaries from other grants therefore did not use up all the monies from this restricted grant.  The agency notified the donor and in their letter mentioned that maybe they can donate the unused monies for their general and operating account instead of returning back, the donor said no and requested the unused money back.  So I would recommend notifying the donors and suggest their money can still help out the organization in other ways.

 

MAS

[Catherine]

I was going to make a similar suggestion to ILLMAS; contact donors and ask if the contribution can be re-purposed.  Otherwise, return.  But Margaret knows far more in this area than I do!

[Margaret CPA in OH]

Thanks, Catherine, but the guide knows more!  The ask for redirection of donations is better than returning because that can call into question the status of the church.  As I indicated to the OP, there is much more to consider and too much for me to post.  My mouth works faster than my fingers

 

[JohnH]

Thank you Margaret, Catherine, and MAS.  I do think it's important to keep in mind that this is a non-profit ministry, not a tax-exempt church.  So there are reporting requirements and representations to be made on the Form 990.  My initial recommendation was to suggest to the donor, in order of priority:   

1) retain the credit to apply to a future trip;

2) convert the gift to "undesignated/unrestricted"; 

3) designate for another purpose; 

4) request a refund

Anything in 2, 3, or 4 implies that the donor did not relinquish control of the funds and therefore calls into question the deductibility.  That could in turn jeopardize the non-profit status in an extreme reading of the rules.  However, the fact that the category of "temporarily restricted" funds exists would imply from a common-sense standpoint that some degree of input from the donor is acceptable when the initial purpose cannot be achieved.  This differs from the issue of returning undesignated contributions, which is an absolute "no-no", other than in a few extreme situations.

There are court cases involving situations where the organization willfully violated the intent of the donor, and the donor demanded a refund, but that sort of thing is not in play here.  This involves committed donors who each contributed and/or raised $3K or so of support specifically to participate in the mission trip.  It's important to insure that they are treated fairly as a matter of good stewardship, acting with integrity, and not stepping outside the bounds of acceptable practices for a non-profit.  I was surprised to find that ECFA didn't have specific guidance that I could find on this matter.  I'm checking out Margaret's recommendation to find what "Church and Clergy Tax Guide" has to say on the subject, and also subscribing to another service as well.

 

[Margaret CPA in OH]

Sorry, I did miss that this was not a church.  You have listed some specific issues raised in Church and Clergy Tax Guide although the book does elaborate more and is more pointed to a church.  The possibility of status jeopardy is indeed mentioned.  Glad you are continuing to search out resources.  Hope you find what you need!

[JohnH]

I did find this interesting title on the Church and Clergy Tax Guide site, which I now have on order:

"The Enforcement or Return of Donors' Designated Gifts - Feature Report"

I think that's going to give me some pretty good guidance on this issue, so thanks for the suggestion.