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Q&A: Refunding a Contribution

Is it legal (or moral) to give back a large financial gift at the donor’s request?

One of our board members gave the church a gift of $10,000 with no strings attached (his words). The church provided him with a contribution receipt. We had hoped to put that money toward a building project. Recently, the donor asked if he could have the money back for three months, for an investment. Are we legally obligated to return his gift?

Most church leaders eventually are faced with a request from a member to have a charitable contribution refunded. Usually this occurs because of financial hardship. It is a surprisingly complex question, but here are two considerations to help guide you toward an appropriate response:

A charitable contribution is a gift of money or property to a charitable organization. Like any gift, a charitable contribution is an irrevocable transfer of a donor's entire interest in the donated cash or property. Since the donor's entire interest in the donated property is transferred, it generally is impossible for the donor to recover the donated property.
Most charitable contributions, like the one you described, are undesignated, meaning that the donor does not specify how the contribution is to be used. An example would be a church member's weekly contributions to a church's general fund. Undesignated contributions are unconditional gifts. A church has absolutely no legal obligation to return undesignated contributions to a donor under any circumstances. In fact, a number of problems are associated with the return of undesignated contributions to donors, which I cover in detail in the Church & Clergy Tax Guide.

Churches should resist appeals from donors to return their undesignated contributions. No legal basis exists for doing so, even in emergencies. Churches should not honor such requests without legal counsel.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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Posted:
  • July 22, 2013

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