Sounds like they set up a non-profit foundation for their son. He used or misused some of the money. BYU became aware that the foundation that was established was likely not going to actually be a legitimate tax deduction if their son ran it. The auditors come in, they see all kinds of deductions that would not be allowed to their son -- even if it was work related (car, travel expenses, bonuses, etc.). BYU tells them it needs to be donated to a legitimate charity and separated from the son's administration.

Son may not have done anything criminal, but this was a shell game established by the parents to provide assistance for their son and ALSO get a tax deduction. The funds were given to the school so they could get the tax deduction. The son likely misused the funds in a way that he thought was allowed, but was likely not in step with traditional foundations (and he is related to the donors, so likely never tax deductible.)

I see BYU's position. They are essentially having to defend a deduction that should not have been given in the first place. BYU has characterized the donation as general in nature so that the deduction can be normalized for them, but they want the money to be used for their son -- which is 20/20 hindsight.

Yes, it is a lot of money, but the foundation of the foundation was shaky from the start. BYU's acceptance probably was done believing that the school would be indirectly benefited, but in the end, it probably looked more like only the son was benefiting. That is what the parents wanted, but was not a tax deduction. The problem is they wanted the tax deduction and probably should not have structured it this way. Taking control away from the son allowed the gift to normalize into a general gift not benefiting the son directly.

Certainly a little crazy in terms of tax problems, but I don't see that BYU did anything wrong. The undercurrent here is that these folks were trying to use BYU as a way to 1) get a tax deduction and 2) help their son's career and/or provide support for him. It was very shaky from the get-go and probably someone in the giving department really took a chance on this one to get money through the door and should not have done so. BYU's fault was probably telling them that it could be done when over the years it became apparent it could not be done. As the deduction has already been taken, it was up to BYU to get it in alignment with tax laws -- that cost the donors their "donative intent," but it is a losing argument given that they took the deduction.