Good question. I can't see how they would/could be penalized. That was a
valid charitable contribution for that tax year. Your organization has held that
funding since then. This also is an amount of time for which their money, had it
not been donated could have been earning interest or invested (and taxed).
Unless you provide them with a 1099 or whatever IRS filing form may be
required (if one is), the return of their donation will not be subjected to tax
or penalty because obviously it cannot be considered as income.
I would also consult with your State's Attorney General's office regarding
the refunds.
Pam
In a message dated 1/18/2006 5:50:23 P.M. Eastern Standard Time,
[log in to unmask] writes:
Hopefully some kindly member of the list can point me in the
right
direction.
We have a dozen or so individuals who donated money
(some a few hundred
dollars, one gift around $2000) for a specific project
(it was in the
early planning stage when the money was given), and that
project has
just been canceled for a number of reasons (it never went
beyond
planning). Since the money was given for a specific purpose we're
going
to write to the donors to let them know that the exhibit has
been
cancelled and kindly ask that they allow us to put their donation
toward
our other exhibits. If they chose not to do so, we'll give
their
donation back-but (there's always a but) I am 99.999% certain that
if
they took a tax deduction (most likely on their 2004 return) for
their
gift, they will take a penalty upon the return of that gift. I did
a
quick search of the IRS's website and couldn't find anything
relating
directly to this topic. Would anyone be able to provide me
with some
specific language on this matter? Has anyone else out there had
a
similar situation?
Thanks in
advance!