'3 Cups of Tea' Author Greg Mortenson Owes His Charity $1M

The charitable trust doctrine assumes that a gift given to a charity will be used for charitable purposes. As a manager of a charity, a violation of that rule can cost you. It's certainly costing author Greg Mortenson. The author of the best-selling novel "3 Cups of Tea" must pay back $1 million to the very charity he founded, reports CBS News.

After 60 Minutes investigated Mortenson last year, they found that the author and philanthropist had been "mismanaging and personally benefiting from the funds of his charity," CBS reports. The charity in question is the Central Asia Institute, an organization that builds schools in remote Pakistani and Afghani villages.

While the IRS has jurisdiction over non-profit tax issues, states are free to handle other matters. The charitable trust doctrine is one that states typically enforce, usually through the Attorney General.

The 60 Minutes episode prompted Montana's Attorney General, Steve Bullock, to conduct an investigation into Mortenson's alleged mismanagement of the charitable funds.

The findings of the investigation were released April 5. They showed that Mortenson used over $1 million from his charity's funds to pay for his travel and book-related expenses. These amounts went unreimbursed.

In Mortenson's case, the mismanagement of charitable funds is landing him in hot water with the state. He owed a fiduciary duty, as a manager of the Central Asia Institute, to ensure that those funds were delivered to charitable ends.

While this is a violation of state law, he might also soon find the IRS breathing down his neck for violating the private inurement rules. These tax law rules state that a manager of a charity is not allowed to use charitable funds for his or her own benefit.

Managers of charities must take great care when they decide to dip into the charity's coffers. These types of actions are highly scrutinized and may cause a lot more trouble than their worth.

Mortenson is now forbidden from sitting in a managerial role on the Central Asia Institute> He can, however, remain an employee. CAI was lucky the Attorney General didn't shut it down.

Related Resources:

• How to Use Your Nonprofit Website to Fundraise (FindLaw for Small Businesses)
• Nonprofit Financial Statements (FindLaw for Small Businesses)
• Private Inurement (IRS)
• Charitable Contributions (FindLaw Tax Center)