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Nonprofit Law/Failure to Spend Non-profit Donations As Earmarked


There was a donation made to a U.S.-based charity that partnered with a charity outside of the U.S. to work on the same issues.

A donation was made to the U.S-based charity for tax-deductible purposes via cheque. The memo in the cheque stated that the funds were earmarked for a specific project.

The U.S.-based charity kept a percentage of these funds, however, for overhead costs.

The charity outside the U.S. is now seeking legal action to get the part of the donation that the U.S.-based charity spent on overhead costs that was earmarked on the cheque.

Is this illegal? Will this hold up in court? What are the options for legal recourse?


First I will inform you that people who give donations to U.S. charities who instruct that certain funds sent to a foreign charity are not allowed any tax deduction on their U.S. taxes for that amount. See the IRS publication at for details about international grants to and international activities of U.S. exempt organizations, and, especially page 3-4 about grants to foreign organizations starting on page 3 at "Deductibility - Control Rules". From page 3:
--- Start of excerpt ---
Contributions to a section 501(c)(3) organization that transmits the funds to a foreign
charitable organization are deductible only if it can be shown that the contribution is in
fact to or for the use of the domestic organization, and that the domestic organization is
not serving as an agent for, or conduit of, a foreign charitable organization. Rev. Rul.
63-252, 1963-2 C.B. 101.
--- End of excerpt ---

As for whether the donor would be able to have a U.S. court decide that all of the funds legally would be required to go to the foreign charity, that is not an element of U.S. tax law. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Your matter is controlled by state law and states may differ somewhat with how they would treat such issues. Even though this forum is not for such state law issues, I will give you some information as to this issue.   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 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

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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