One of the things you learn quickly when you start and run a 501[c] organization is that you have to deal with money wisely. Non-profit organizations are no different from any other business because you have to make a living. Otherwise, your charity will cease to exist. The current economic difficulties make this task even more challenging because we are all chasing the dollar until we see them.
But here's a question you might not have considered: Will you misappropriate funds without knowing it if all your efforts are kept on? Are you likely to commit a crime? If you don't understand the IRS's requirements for a designated fund, you might do so.
I can't start telling you how many times we saw this happen. Most of the time, the board of directors or executive directors are innocently trying to be good stewards for people to donate money.
For example, suppose something in the soup kitchen is very tight. The general operating fund does not have enough cash to buy all the food needed for the upcoming Christmas. However, there is considerable cash in the fund for building new facilities. Moreover, in fact, food shortages are a more pressing need. Illegal construction projects will be launched for at least two years. Is it possible to transfer part of the construction fund funds to the food fund?
Maybe… maybe not.
The two designated funds understand that there are two types of designated funds [or partnerships], solicited and unsolicited, is the first step towards achieving this goal. Let's take a look at each:
Request specification. from
Solicitation means that your organization requires donations for specific reasons. Maybe it's through letters, emails, websites, broadcast points… it doesn't matter. Importantly, contributions to direct solicitation will be used permanently for this purpose. In our soup kitchen example, if the funds are the result of solicitation, the board cannot move the money, no matter how terrible the situation. Just last week, many of you may have read the story of a large national charity executive who resigned after discovering that he had done this. Is there a good reason for this? Yes. Is this illegal? Unfortunately, yes.
Unsolicited name. from
These are donor funds designed by donors and are not solicited by charities. For example, Bob decided to donate $100 to the local soup kitchen, but he decided to "designate" the funds for future expansion. In this case, can the charity legally transfer the funds to its food fund? This may surprise you… but the answer is, "Yes!" It is fair to say that sometimes it is politically beneficial to respect unsolicited design, but the key point is that only charities can Linked to donations. For charities that have been struggling to cope with these situations, this news is often a welcome remedy.
Another point about soliciting a designation… there are ways to avoid this problem. First, a disclaimer is provided to indicate that the organization reserves the right to transfer funds in the manner it deems appropriate. Alternatively, funds received in any budget that exceeds the intended purpose will be deposited in the General Fund. In the event that the disclaimer is too late, you can return to the donor and request permission to re-adjust their contribution. Remember that they have the legal right to refuse, although this is illegal under most legitimate needs.
Dealing with the financial situation of non-profit organizations has always been a challenge. Knowing how to properly handle assignments is critical to avoiding problems with donors and the law.Ultimate Cleaning Business Package, Click here!