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FormerPresident

Being Sued for a Charitable Donation

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Back in 2013 I was the president of a licensed non-profit operating in Massachusetts.  We fell behind on payroll and we were reported to the Attorney General's office and both myself and the treasurer were to be cited by that agency.  But the treasurer's husband "donated" $50,000. to us from an account listing only himself as an owner and we were able to cover all of the payroll.  And only I as the president was cited.  This money was donated not loaned and the couple were given a charitable donation letter which they used to take a deduction off their 2013 taxes.  Then in 2015, I along with another member of the administration, received notice that a civil suit had been filed against us by the treasurer for restitution of this money.  However, her husband is not a part of this suit. She contends that she never "authorized" any such donation.  But curiously, she did sign her income taxes that year which means that she most certainly was aware of the donation!   We have retained an attorney but he thinks we should just settle.  However, it is important to point out that this couple has not amended their taxes nor do they have any intention of doing so.  This means they enjoyed the benefits of a large charitable donation and will now be putting money into their pockets.  This has to be illegal and against the IRS code or at the very least she must be guilty of filing a fraudulent civil suit.  In addition, if we do settle, would this in any way make me culpable to IRS fraud as I signed the original letter for $50,000. and if we give them $25,000. this would mean that letter is false.  Anyone who can please give me sound advice would be most appreciated! 

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 if we do settle, would this in any way make me culpable to IRS fraud as I signed the original letter for $50,000.

 

I doubt it but you might be wise to talk to a tax attorney.

 

 

 if we give them $25,000. this would mean that letter is false. 

 

No. The letter was true then, it will always be true. A settlement doesn't negate it.

 

However, if you pay anything I suggest you immediately send documentation to the IRS.

 

Meantime, I think I'd be looking for another lawyer if yours doesn't want to litigate. I don't think it would be too tough to win. And if you do win, you can claim frivolous lawsuit and seek attorney's fees.

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she did sign her income taxes that year which means that she most certainly was aware of the donation!

 

Well...that she signed the return doesn't mean she reviewed it with any degree of care or that she had actual knowledge regarding any particular entry on the return or the schedules.  But yes, she at least had constructive knowldge.

 

 

 

it is important to point out that this couple has not amended their taxes nor do they have any intention of doing so.

 

First of all, I have to wonder how it is you claim to know so much about this couple's tax returns and their intentions.  How could you possibly know their intentions?  Have you actually seen their tax returns?  Second, even if you're right, I don't see this as being the slightest bit "important" as it relates to the civil lawsuit you mentioned.  Whether they do or don't amend their tax return is between them and the IRS and the Massachusetts state taxing authority.

 

 

 

This means they enjoyed the benefits of a large charitable donation and will now be putting money into their pockets.  This has to be illegal and against the IRS code or at the very least she must be guilty of filing a fraudulent civil suit.

 

Not at all.  Certainly, if they prevail or you settle, they should amend their returns (if, in fact, they took deductions to begin with), but, again, that's not your concern.

 

 

 

if we do settle, would this in any way make me culpable to IRS fraud

 

No.

 

 

 

if we give them $25,000. this would mean that letter is false.

 

No, it wouldn't.  In 2013, when you signed the letter, you believed it to be a donation.  If you settle, you'd presumably be doing so to avoid the expense and uncertainty of litigation, and that has no bearing whatsoever on the "truth" or "falsity" of the letter you signed.

 

Frankly, the biggest issue I see is that these folks apparently have sued you personally for an alleged loan that was apparently made to the non-profit entity (which I assume is or was a corporation or LLC).

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I too think you may want to get a second opinion from a another attorney after providing him or her with all the documentary evidence. I am curious, what is the actual cause of action asserted against you (and I am not entirely clear if you mean "you" as an individual or officer of the non-profit or "you" as the non=profit entity). While litigation is expensive, I'm not entirely sure this is something I would settle unless the attorney could do so for roughly the same amount you might pay in legal fees to defend.

 

If she alleges breach of a loan agreement, she would have to prove the money was given as a loan. Is there any paperwork of that nature? Certainly your contemporaneous action of providing a receipt for tax deduction purposes suggests a donation. How was the money transferred? Personal check? Was her name on the account or check? Can she prove she gave the money?

 

Or does she allege some other cause of action associated with a divorce or bankruptcy (i.e., the transfer was a fraudulent conveyance)?

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Thank you to everyone who has replied so far.    

First of all, she is suing my self and another person because we were co administrators.  She is alleging it was a loan but there was never a promissory note or terms.  She gave the money at the time to avoid being cited by the Attorney General.  In addition, she as treasurer deposited the money into the account and never brought the matter before the board.  In 2014 she tried to say it was a "loan" but our attorney and her attorney agreed it was not.  That is when she and her husband took it as a donation off their taxes. 

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FormerPresident,

 

How is this 501c (is it a federal nonprofit)  organized? Is it an LLC, partner ship? You have a president and a treasurer so I assume its an LLC but please clarify.

 

The FindLaw.com Team

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First of all, she is suing my self and another person because we were co administrators.  She is alleging it was a loan but there was never a promissory note or terms.

 

Not sure what the first sentence here means.  Outside the probate context, "administrator" isn't a term that has any particular legal meaning.  Is she alleging that the loan was made to you personally or to the non-profit LLC?  If the latter, what is the basis on which she is alleging you are personally liable for a loan made to the non-profit LLC?  Is there something in the complaint about you being an "alter ego" of the LLC?

 

Depending on the specific allegations in the complaint, before considering any settlement, I would think long and hard about fighting the claim that I was liable for a loan that was supposedly made to a non-profit LLC of which I used to be an offer.  You should also look into whether the LLC had insurance coverage at the time to which you might be able to tender your defense of the suit.

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That is exactly where I was going by asking about the incorporation.  pg1067 is correct, unless the loan was directly to you, you are not the proper party in this lawsuit. You shouldn't be personally liable to loans made to the LLC. This alone is grounds for a dismissal with prejudice (barring more facts).  What has your attorney said about this?

 

The FindLaw.com Team

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The money was given to the school.  Myself and the other being sued were on the board so the money was not given to us.  The money was also not a loan it was a gift that she is now trying to say was a loan.  I never signed anything to indicate it was a loan.  That is why this is so wrong.  Neither did the other party being sued.  Our attorney just keeps telling us that they have "deep pockets" and if we see this through litigation it will be expensive.

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The money was given to the school.

 

What school?  It's not conducive to a productive dialog to introduce new facts without any context.

 

In any event, the question is what does the complaint allege as far as to whom the loan was made?  We're not asking about your version of what actually happened.  As the moderator noted, if the complaint alleges that the loan was made to the LLC and does not also allege some basis on which you should be personally liable for a loan to the LLC, then you are not a proper defendant, and getting yourself dismissed ought not be too difficult (although it's always possible that the plaintiff could amend the complaint).

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The integral part being that if you were to move to dismiss this based on what we've talked about, they would have to provide some solid facts in their opposition to the motion. In other words, they would have to explain themselves earlier than usual.  This would help you greatly.  If they have concrete facts supporting the claim, then maybe settling would be more advantageous?

 

Does that make sense?

 

The FindLaw.com team

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Sorry about the information...the licensed non profit was a private elementary school.

 

And you still haven't answered the question about what the complaint SPECIFICALLY ALLEGES.

 

Why don't you just quote the allegations word for word (redacting any identifying information)?

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