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Nonprofit Law/Non-Profit Organizations gets Donations from Illegal Activities


I know of a non-profit, public supported education warbird museum that has a member that donated large sums of money.  It was later revealed that this money came from a government contract fraud scheme and now that member is a prisoner in federal prison.  Should that museum be obligated to give that money back to the government?  It feels that's the ethnical thing to do since this is a non-profit public supported museum.  

That member bought a warbird with his money from that contract fraud scheme and the museum is allowing him to store it in their museum hangar for public viewing.  Sounds like the museum is still being paid by this member to keep his airplane while he's in prison.

In addition, that museum is also storing another members business jet (not a warbird) in the same hangar.  It has a questionable background and has liens against it.  Many believe the museum is letting that member pay them to hide his jet.  Museum director said it's technically rent but the museum is not calling it that.  

Filed a formal complaint with the IRS with Form 13909 but don't know if they will conduct an audit of even care.

The exempt organization may have a problem but only if they conspired with a donor or member in conducting illegal activities, not if they are simply accepting the benefits of someone else's illegal activities.  For example, if a organized crime boss in Chicago donates funds from his illegal activities to a charity, the charity normally accepts the funding, no questions asked.  I deal here with legal issues.  As for what is "ethical" that may be something else, but I don't want to confuse things here by getting into issues other than legal issues.

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


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. 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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