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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I volunteer for a dog rescue organization. A few months ago,

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I volunteer for a dog rescue organization. A few months ago, there was a pregnant dog in the shelter who was about to be put to sleep. I decided to foster her through this rescue group. The President of the rescue group told the shelter volunteers that we could not pull the dog from the shelter without at least $1,000 in donations to pay for vet expenses for the mama and the pups. The dog shelter volunteer group runs as a 501(c)3. They solicited donations at the request of the rescue group, and forwarded $1,100 in donations to the rescue group [also a 501(c)3] for the purpose of paying for the mama & pups' vet expenses. The rescue group requires fosters pay for vet expenses and then submit receipts with a refund request form. I did that. My vet expenses were over $1,200. They only reimbursed me about 50% of what I paid and they have used the remainder of the funds for boarding expenses for other dogs in the rescue that do not have fosters to care for them. If these funds were sent to them for the original intended purpose of provideing vet care for mama dog and her 8 babies, aren't they legally required to use those funds for that purpose? Where can I find the IRS reg that speaks to this? Thanks!!!
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

Hi, please don't shoot the messenger here, but the way IRS regulates that is more about making sure that they are taxed on an unrelated income .. and there's another are called enurement )or excess benefit traansactins) where employees and/or board members can't benefit for more than their salaries would normayll be worth

Lane :

The way the "watchdogs' out there try to tell us if a charity is a good one or not is the percentage method you metion

Lane :

For example:The do-gooders at the American Red Cross do a good job of spending your money when you donate. They manage to keep administrative expenses at less than 5% of their total overhead, and they spend 92.1% of their income on actual programs that benefit the community. Whether it's teacher CPR, or managing crisis during the aftermath of a disaster, the Red Cross puts your money to good use.\

Lane :

and another one from thsi site: Approximately 85 cents for every dollar you donate to World Vision goes to help stamp out poverty around the world. While they are still well below the 33% benchmark, they tend to spend more on fundraising than other charities. Nonetheless, if stamping out poverty is your passion, World Vision does a good job with your dollars.

Lane :

BUT if this place is doing a good job of accounting, and filing their annual non-profit return, it will be hard to make them pay YOU for these expenses (eventhough they certainly should, from a moral perspective)

Lane :

Here's the watchdog website I was telling you about: http://charity.lovetoknow.com/What_Percentage_of_Donations_Go_to_Charity

Customer:

There is a Foster Contract in place that was signed by me (and them) that specifically states what expenses are my responsibility and what expenses are the rescue group's responsibility. Vet expenses is the rescue's responsibility. They solicited donations for the specific purpose of paying for mama & babies' vet expenses. People gave donations for that purpose. Aren't they legally required to use those funds for the original intended purpose?

Lane :

Ahh, what you have here is a contract law issue ... You're absolutely right. ... The problem is that threatening them with a loss of tax exempt status won't work f they're dotting their I's on the allocation of funds to "charitably RELATED purposes ... HOWEVER, an attorney could have a field day here with breach of contract!

Lane :

I would go to them with a threat of a breach of contract issue (might even be worth getting an attorney to write a letter for maybe $100, to get the to act)?

Customer:

Got it.

Lane :

Good luck with it ... maybe you drop that "sounds like a breach of contract issue" statement first, and see what kind of reaction your get

Lane :

Here's a quick primer on contracts ... (if one of these elements are missing (like failure to perform, you may have a breach)

Customer:

Good idea. Thank you for your help on that issue. I'm still confused on the donation of funds issue. If they solicited donations for the purpose of paying for vet expenses for a specific dog....how can they reallocate those funds for another purpose? For example, if they issued a plea for donations for a specific dog to have surgery, and people donated to that cause.....can they legally use those funds to purchase a vehicle for transporting animals? It doesn't seem like they should be able to reallocate those funds to another purpose. If, however, someone sent in an unsolicited donation, and didn't specify it's use, I could see how they could use it for whatever purpose they wanted. Does that make sense?

Lane :

Yes, makes perfect sense. It's just that the way the rules are set up ... the way the IRS looks at it is ... the donations are either used to further the purpose (mission) of the charity or they aren't. The terminology is UBTI (Unrelated Business Taxable Income) ... IT's THAT unrelated to the charity type of income that becomes taxable when they do the annual tax filing m(which requires a separation of "related function income" and "Unrelated income." The other issue is whether EXCESSES BENEFITS accrue to employees or directors.

Lane :

Although this os for a non-profit school newsletter, it does a good job of explaining the ecessbebefit issue : http://www.federaltaxissues.com/0300_private/0320_private_doctrine.php

Lane :

New, let me get you something on the unrelated income vs related fundtion income

Customer:

I would think that the solicited donations would have stricter rules than the unsolicited donations. Otherwise, the solicited donations could be collected under false pretenses.

Lane :

sorry, no ... a charity has discretion to redirect donations to another initiative that still fits within its purpose.... Think of it this way; the charity itself IS the purpose, not each donation

Lane :

spend a little time with those links and I thin the dots will begin to connect HOWEVER, your intuition is VERY good in that their behavior is not acceptable

Lane :

It's just that the way to enforce this will be under theor breaking of a promise (in legal terms, breaching a contract)

Lane :

Hopefully you'll rate my answer on its thoroughness and accuracy (rather than any good news/bad news content) ... and hopefully having all the facts will help you "see around some corners here" It's very likely that the folks at the charity know these issues... that's why they're behaving the way they are ... HOWEVER, blonside them with a breach of contract threat? (and not all contracts have to be in writing) THAT will probably get their attention

Lane :

(sorry for the typo) ..."blindside"

Customer:

I would never rate you on good news/bad news. I really appreciate your time in answering this for me. I will review the links you provided. Thank you!

Lane :

Just to try to provide some context, here's a table of the different types of charities, foundations, tax exempt social clubs, etc under the broad unmbrella for IRC section 501 ... When someone wants to make donations for something truly different, they typically set up a different charity http://www.guidestar.org/rxg/help/irs-subsection-codes.aspx

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4380
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

There is not a separate charity for vet expenses. One 501(c)3 transferred funds to another 501(c)3 via PayPal for the specific purpose of paying vet expenses for one dog. Those funds were collected from the general public for the sole purpose of paying vet expenses for that one dog.


 

Expert:  Lane replied 1 year ago.

Right .. was just trying to say, that the way IRS looks at it is whether they USE the money on something that's GENERALLY within their purposes or not.

I really do believe however that they breached their promise to pay, and that might be worth floating it out there.

... or even asking how many OTHER people have had this situation (not that you'd actually go there, but it might make THEM worry about a class action type of suit)

Hope this has helped,

Lane
Customer: replied 1 year ago.

Yes, thank you very much!

Expert:  Lane replied 1 year ago.

And thank you so much for the rating!

(That's the only way they pay us here)

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

OR you can add me as a preferred expert on your home page.

Regardless, thanks again for the rating!

Lane

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Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986