Why would an organization have to understand returning charitable donations? After all, isn't the point of a charitable donation to give something away permanently? Sometimes but not always.
About Returning Charitable Donations
Returning charitable donations may not be the first thing on your mind when you make a donation whether it's to a church, a foundation or other charity, but sometimes those donations must be returned. The most common reason for a donation to be returned is that the donated property or funds did not belong to the person making the donation.
For example, if a person embezzles money from a business and donates those funds, then that is a donation that must be returned. One may believe that a donation is the property of the charitable organization that received it, but only if the person who donated the property actually owned it.
This issue becomes more complicated when dealing with spousal property. Spouses share joint and individual assets, but one spouse cannot give away the property of another spouse without their permission. For example, if one spouse were to donate a sizable amount of another spouse's income, property or income earned from a property held by the other spouse, then that would be a situation that calls for returning charitable donations.
Record Keeping and Receipts
Charitable organizations must provide a receipt for all donations upon request. They must also keep excellent records of donations received, how they were received and where they were received. In the case of property donations, items such as vehicles include a title that must be transferred from the individual to the organization. In these instances, the charity can clearly identify that the property belongs to the person making the donation.
In the case of cash donations, particularly large cash transactions, this can lead to nebulous territory. One example may be the individual who regularly donates five percent of his or her gross income to a church or charitable organization. This person then declares bankruptcy. The bankruptcy courts may order the charitable organization (including churches) to turn over the donations.
Congress amended the Bankruptcy Code in 1998 to exclude some gifts from the rule, limiting recovery to only those donations received in the year before the bankruptcy was declared.
Other Donations That May Be Returned
Returning donations may be required when a donor attaches provisos or conditions to their gifts. For example, in the case of an endowment, the endower may stipulate the funds are to be used to provide scholarships to children of veterans only. If the funds are used in direct contradiction to the terms of the endowment, then the donation may be recalled or returned.
Requesting the return of a donation is a serious matter. In some cases, a denied request may lead to a lawsuit while returning a donation can lead to financial difficulty for the charitable organization - particularly if the funds have already been spent or dedicated elsewhere.
For example, if a car was donated but must be returned and the charity has already sold the car and used the funds for a project, the charity will have to make good on the funds earned.
Seek Legal Advice
When it comes to requesting the return of a charitable donation or processing the return of charitable donations, you should never act without competent legal advice. Different states have different laws governing property, property settlements and more.
