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Nonprofit Law/transfer funds from one 501(c)(3) to another

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Question
First of all, thank you for answering legal questions for the general public.  

My husband belongs to a veteran's organization in Texas in which he and another member raised around $25,000 for a veteran's event scheduled for 2015.  The event has been cancelled.  He and the other fundraiser member want to return all of the funds to the donors.  

Meanwhile another non profit was created after the 2015 event was cancelled.  Their sole purpose is to raise funds to create a local veteran's park.  Most, if not all, of the board of directors of this small organization are the same board members as the veteran's organization my husband belongs to.  The smaller organization has transferred most of the funds earmarked for the cancelled event to their organization saying that the majority of board members from the first organization have approved the transfer.  My husband feels this is not morally right.  Is it legal to transfer the funds between the 501(c)(3) organizations?

Thank you.

Answer
 Generally, donors give up any authority over donated items and
funds, unless they had a specific signed agreement with the
nonprofit with a reverter clause or at least a letter indicating
the conditional nature of the gift.

This an issue called "enforceability of a restricted gift to a
nonprofit organization"

A case that discusses the issues is at:
http://goo.gl/YQB5s
starting in the middle of the first column.

Although that was a Connecticut case, most states would have
similar treatment.  In other words, a donor who has made a
completed charitable gift to a nonprofit organization does not even
have standing in a court to bring an action to enforce the terms of
that gift unless the gift instrument contained an express
reservation of control over the disposition of the gift, such as a
right of reverter or a right to redirect. A right of reverter means
that the donation would be refunded if the charity breached the
agreement.

Therefore your husband's 501(c)(3) organization may grant funds to the other 501(c)(3) organization (as long as the recipient organization is not a private foundation (it is a public charity).

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

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

Expertise

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 Harvey108@hotmail.com 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 "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

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.

Education/Credentials

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

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


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