Folks,
I have been kicking around non-profits for over 40 years; but I am not a lawyer or anything like that. However:

I have seen Executive Directors get fired for not following the guide lines on restricted funds.

Many foundations will quit giving to organizations that do not spend their money the way they said in the grant applications.

Large donors will have second thoughts about future donations if it is known that restricted funds are not used properly.

There is one small way to get into restricted funds. That is to make it clear to the governing board and in the annual report that the money is a loan and must be pair back to the find.

If there is a question; do not put restrictions on you money and it is always a good idea to spend it wisely.

Ted Miles, retired but still interested

Again, not an expert but here’s my two cents: The IRS doesn’t have much to say about returning restricted funds. As I understand it, it’s on the donor to report the refund, like they did for the original donation, so 1099s are not issued. You should provide documentation with the refund that the donor can use as verification that the refund was issued.

Keep in mind that there is a big difference between funds restricted internally and donor restricted funds.

You should have guidelines on donor restricted funds and a signed agreement when accepting them that spell out what you can and cannot do with that money as well as what happens if that specific project doesn’t come to fruition. I think most states have rules about restricted funds so that’s where I would look first for info.

I’d also contact a tax attorney that knows nonprofit law in whatever state this occurs to get the real lowdown.

Donor restricted funds can be both a blessing and a curse. In my book, I’d try to avoid them.

Again, not an expert, so don’t take the above to the bank without doing your own due diligence.

No, it is not. But that doesn't appear to be an accurate statement of what is happening, based on the rest of your initial post:



The implication is that donors were contacted, and some indicated their willingness to have their funds reallocated to a slightly different purpose. And for those who did not agree, this organization is offering to return the donation. They are correctly and properly notifying the donors that there can be tax consequences for a refunded donation if it was previously used as an itemized deduction. It also appears that the unspent donations which are not refunded will still be earmarked for that same item in the collection.

Organizations have to be very careful when accepting temporarily restricted funds that have a restriction based on purpose. It is in the best interest of the organization when soliciting funds to be as broad as possible with the purpose, so the organization does not find itself in a bind later on. However, I think if funds were donated for a specific piece in the collection, and those funds are still being used for "direct care" of that object, the organization is ethically on fairly solid ground.

Disclaimer: I've never been to MTM and I have no idea what "the 325" is

For what it's worth, I am unaware of the museum directly contacting previous donors to this project. They are just hoping their little newsletter sent to current members of the museum, and those who follow their new Facebook page will see the update.

Either way, it is my opinion that "sunsetting" this fund, that includes donor restricted funds, is highly unethical and likely illegal.

MTM's books were kept straight as an arrow until at least early 2021. Every donor that gave a "donor-restricted" donation was logged with name, contact information, and amount. MTM claiming that previous donors need to contact them with proof, when they have it in their financial records is enough to make a guy want to start a lawsuit.

It is NOT the donor's (if they are even still alive, some older gentlemen donated to this cause) responsibility to monitor a museum's activity on the financial side. The Board of Directors have a responsibility to the donors of the organization to make sure all funds are handled with great care.

They don't have the guts to call people and attempt to make personal contact, and not just cryptic messages on their social media and news-rag for their members.

I have no dog in this fight, but I know if I donated to X project, for X scheme, and suddenly it was changed and my donation was rolled into a general fund without a real effort made to get in touch, I would be pretty damn PO'ed, and they sure as hell would not get another cent from me.

Exactly. And it’s even more annoying that one person who wants show off how rich he is gets to over rule the support of multiple members who had been fund raising for a different paint job.

Here’s the answer to the legal question in Minnesota.

https://www.ag.state.mn.us/Consumer/Handbooks/CharitiesLaws/CH7.asp

https://www.revisor.mn.gov/statutes/cite/309.755

So the only reason people like Doyle McCormack, Ross Rowland, Andrew Muller, Bennett Levin, Henry Posner, and others like them make the contributions they do is so they can "show off how rich" they are?

Even when they manage to get others to go along with, and support, their sometimes seemingly half-baked schemes?

I wasn’t commenting on those individuals but I’m not aware of the same situation applying. Of course one day it will be great when the 614 is returned to its historic paint.

You're doing a good job of making it sound like all you care about is paint.

Tell you what: Let's get someone to talk the donor into buying a flashy sports car instead to flaunt his wealth, and you folks can go back to struggling to raise the monies needed for your desired paint job, where you chaps stand at something between a quarter and a third of the funds needed.............

I'd rather just about any loco gets ANY decent paint job to protect it, even a Maersk or Disney movie shoot paint job, than let it languish and rust out in the back lot awaiting a super-specific but historic paint job.....

Well paint is part of railway preservation and that’s what this site is about so yes, I care about it.

Correct.

Your best options are:

Ask the donor(s) to re-task. See Sandy’s idea in the 3rd message for how to exploit a large donor to do it one shot.

Find more things to do that fit the fund’s purpose. Is a project ever *done?*

Find PAST expenditures on the project which DID fit the fund’s purpose, but were not yet charged to the fund. That is a legit and normal practice, to gather up a year (years?) of past expenses paid out of general funds and debit the Restricted Fund for them. There isn’t any sort of “gotcha deadline” there.

Your last Hail Mary is to go to court and file a <url=https://en.wikipedia.org/wiki/Cy-près_doctrine>“Cy Pres” action</url>.

I have heard legend that a certain trolley museum (none I volunteer at) had a lackadaisical bookkeeper who did not grasp restricted funds, and allowed the outfit to massively overdraw them. When they realized the soup they were in, they pulled a Kingston and started actually turning the crank on the “money machine” that most railroad museums actually are. With some hustle, they earned it all back and none’s the wiser :)




This is Sandy’s good idea to which I refer.



It may come to that, but it would be messy tax-wise.

The far more elegant solution is the guilty charity ought to “mea culpa” by offering to re-donate the amount to any other 501c3 charity of the donor’s choosing. Thus you have none of the tax mess. This is perfectly legit; that’s what Donor Advised Funds (DAFs) do all day.




Oh snap! They’re really up the creek, then. Yeah, they’re gonna be doing some apologizing and writing checks. Might be easier to find another piece that those donors would love and paint *that* their way.




The root issue is that there’s a consensus process that’s supposed to happen there, as in “politics”, and a) a Restricted Fund was badly used to thwart that process, and b) someone used a pile of money to also thwart that process.

Of course, I’m one to talk :) I regularly make equipment show up at museums who are indifferent. *but not opposed, mind you*.

And I would never use the power of the purse to force a paint scheme - though I have used the power of the paintbrush, as in “you paint it, then”.

https://www.trains.com/trn/news-reviews ... completed/
What color was the unit delivered in, didn't pick that up in this thread?

From the article quoted:
Note also the comment about how much of the museum's equipment is said to be painted in the GN orange and green colors.
But... on the other hand... there was this, from the original post:
This seems very similar to the reason a certain PA currently wears a paint scheme utterly unrelated to its whole service history, let alone how it was delivered or modified over the years.

But this controversy isn't about whether the locomotive 'should' have been painted in the original scheme or not. The money was donated under the explicit understanding that the locomotive was going to be painted in BSB, and to me that puts the onus on the museum to individually contact the donors, discuss the situation however briefly, and offer the return of the donation if desired, without pressure to 'dedicate the funds to other work on the 325' or whatever. My concern is with the way the museum seems to be avoiding the simple courtesy of informing the donors rather than posting in weird places as if publishing in a 'newspaper of record' that not everyone knows to read.

Mr. Ellsworth hits the nail on the head. The Uniform Prudent Management of Institutional Funds Act governs how to deal with donor restricted funds (except for in PA and PR who haven’t adopted it). You legally have to contact the donor directly for approval to divert funds from its restricted purpose. And you better get it in writing. There are ways to get around it having to do with the death of the donor, the age of the fund and dollar amount that varies by state. You’ll likely have to get the state AG office involved for approval which means you should have a lawyer.

Donor restricted funds are line items in your financials so if you did it right, you should have all the background info in your records to contact the donors.