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Nonprofit Law/Do we have a misappropriation?


I am dealing with two separate 501c3 entities.
Entity A was formed in 1989 as a fundraiser organization for hurricane relief. An EIN was obtained but the only function was to raise funds. There wasn't actually a formal organization with officers and such. It was only formed to be able to open the bank account so donations could be received. The bank account still exists, but the funding and purpose has changed.

This brings me to entity B, which is a longstanding non-profit church related entity. They have been taking unsolicited donations designated for disaster relief, depositing the money into entity B's operating account, and then writing a check from B's account and depositing into A's account, even though there is a line item in the budget of entity B specifically for disaster relief. Reimbursements and expenses for disaster relief have been coming out of account A to individuals, suppliers and sometimes back to entity B.

One of the authorized signers on account A is also the treasurer of entity B, and an authorized signer on account B. What legal issues do we have and what should we do to fix the situation?

First I would need to know what type of structure entity A is.  In other words, has it been incorporated under the State's (Georgia, I presume), law for nonprofit corporations?  If not, what is it? Please confirm that the "church-related" entity has received a determination letter from the IRS that the organization is exempt as a 501(c)(3) organization or, if not, how it knows that the IRS would treat it as a 501(c)(3) organization. After you give me that information I will reply further.

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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