The Nonprofit FAQ

Can a member claim a 'refund' for contributions?

A reader wrote the FAQ editor on February 6, 2002: I just read your article on whether a donor can request a refund of monies or articles from a non-profit organization (http://www.idealist.org/if/i/en/faq/135-184/13-17). It answered in general a few questions, but I have a few more specifics in a particular case we are now dealing with. I administer a not-for-profit gymnastics center (a 501c) and have had a family leave our program to join another. The change was their choice; they were not asked to leave. Nothing has changed as far as philosophy of our program or the type of instruction the gymnast would be receiving. The mother was also a member of our staff and helped organize an "over-night" gym program in the fall. We have never given anyone a salary for working a fund-raiser such as this one. However, since both parties working the event our parents of team members, the money raised was channeled into our "Team Account," which is set up to help defray the competitive costs of our program. When this family chose to leave our gym, this mother asked for a refund of the money that was raised at the all-night event -- claiming it was in her daughter's personal account. We do keep record of each team family's contributions (from sponsorship, fund raisers, etc.) within a year so that they are accountable for the portion their child is using. As in any organization such as ours, there tend to be a few who do the work for many. Our lawyer and accountant have advised us not to refund this money. Any advice? Putnam Barber responded: I'm not sure I understand all the ins and outs of this situation. First, let me say that I emphatically agree that you should not "refund" any money in response to this request. The resources of a charitable organization must be used solely to advance the mission of that organization. Meeting this standard means that no-one can claim any sort of ownership interest in funds that have been given to you, whether you received the funds directly from the donor or, more indirectly, as a result of work done on your behalf. An extension of this standard leads to the strict rule that organizations with 501(c)(3) charitable status may not accept donations earmarked for an individual's benefit. Doing so would not only compromise the charitable status of the organization, it would also abet the giver's attempt to convert a personal expense into an income-tax deduction. Hence your organization must never offset a specific participant's expenses based on donations that have been restricted to that purpose. So as a second point, let me say that it sounds to me as though you may be skirting a little close to the line on this issue. I would recommend a careful review of your procedures by someone sensitive to the issues suggested in the previous paragraph; modifications may be desireable, or even necessary, to avoid calling into question the tax-exempt public charity status of your organization. I should probably add that some organizations may have provisions in their by-laws or membership agreements that establish procedures for refunds of membership dues or assessments. I do not believe, however, that any such arrangement could be established that provided for refunds for charitable contributions (i.e., for donations made to the organization for which a charitable tax deduction had been, or could be, claimed by the donor). Posted 2/7/02 -- PB