Nonprofit Law/Fraud


I am an executive director of a nonprofit that I founded in 2011. I volunteered my time as a nonprofit to help assist FEMA victims who homes were destroyed by earthquake damage. Fema asked for nonprofit to help by assisting families with filling out applications to received funds for damages. Once I helped out two men who homes had earthquake damage, FEMA asked for me as a nonprofit with a 501c3 to become the fudicuary agent of the funds. The nonprofit received $36,000 for the two men whose homes were destroyed in earthquake damage. We received those funds in the name of my nonprofit. I deposit those funds. One man came and he got his money which was awarded in the amount of $6,000.00. I wrote a check to him and he got his money. Two months later I found out by FEMA that that man comitted fraud. The next man want to get his money. I waited until a month before Christmas and realized I had personally spent half of the money he was awarded. I had spend close to all of the $28.000. What can I do? I am so scared because I am a small nonprofit and everybody knows me and believes in me. We help assist the homeless. How can I make this right? I tried to raise the funds, but we did not have enouh time to raise all of that money with just one fundraiser. The second man has been harassing me, contacting FEMA and his state official to get the money back from me. I am so scared I do not know what to do. FEMA gave the money to my small nonprofit. The check was made out to my nonprofit. WHat can I DO?

I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations. The 501(c)(3) organization may lose its exemption if it is found to be engaged in behavior that benefits insiders (you). Internal Revenue Code section 501(c)(3) which is available at:
has, in part, that the 501(c)(3) organization must be "operated
exclusively for religious, charitable ...or educational purposes
... no part of the net earnings of which  inures to the benefit of
any private shareholder or individual".

As to your issue of personal liability, I would be willing to work on your matter, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services that I do for organizations.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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