A taxpayer's out-of-pocket expenses while doing volunteer work with a qualified charity generally are tax deductible, as long as the individual can prove the expenditures if the IRS asks.
The U.S. Tax Court subsequently slashed many of the allowable charitable deductions that were in excess of $250.
The reason for the dramatic tax deduction reduction? Insufficient record keeping.
Cat lady's case: Jan Elizabeth Van Dusen claimed $12,068 as a charitable contribution deduction on her 2004 tax return for unreimbursed volunteer expenses she incurred while caring for feral cats.
The Oakland, Calif., attorney volunteered with Fix Our Ferals, an IRS-qualified 501(c)(3) organization. Van Dusen trapped feral cats, had them spayed or neutered, housed them while they recuperated, got the animals vaccinated and other necessary medical treatments and then released them back into the wild. She also provided long-term foster care to cats in her home.
Essentially, according to filings in the tax deduction case, Van Dusen devoted her entire life outside of work to caring for the cats:
Each day she fed, cleaned, and looked after the cats. She laundered the cats' bedding and sanitized the floors, household surfaces, and cages. Van Dusen even purchased a house "with the idea of fostering in mind." Her house was so extensively used for cat care that she never had guests over for dinner.
Upon reviewing Van Dusen's 2004 tax return, the agency determined that she owed $4,383. Most of the due tax was from the IRS' disallowance of her charitable deduction of cat care expenses.
Tax Court weighs in: Van Dusen took her case to Tax Court, where Judge Richard T. Morrison found that her care of the cats did qualify as a tax-deductible charitable donation.
However, Morrison disallowed some of the claimed expenses, such as cremation of a pet cat, bar association dues and department of motor vehicle fees, saying they were "categorically not related to taking care of foster cats and therefore not deductible."
Some of Van Dusen's other expenses also were not solely attributable to foster cat care and are not deductible, said Morrison.
But other expenses, the judge ruled, were directly connected to the charitable organization's cat care services. These included 90 percent of Van Dusen's vet expenses and pet supplies and 50 perent of her cleaning supplies and utility bills.
Good news right? Not exactly.
$250 record keeping divide: Judge Morrison also found that Van Dusen didn't keep adequate records of the expenses attributable to her volunteer services.
Tax law demands that charitable contributions of $250 or more meet certain record keeping requirements. Or as IRS Publication 526 puts it:
You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records.
If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions.
The Tax Court opinion cited this requirement, noting that a taxpayer has the burden of proving the IRS' determination of due tax is incorrect. The burden of proof shifts to the IRS only if the taxpayer:
- Introduces credible evidence with respect to a factual issue,
- Has complied with the substantiation requirements of the Internal Revenue Code,
- Has maintained all required records, and
- Has cooperated with reasonable IRS requests for information.
And, continued the ruling, "the idea that unreimbursed volunteer expenses are free from record keeping requirements is implausible."
So since Van Dusen did not provide the IRS (or the court) with contemporaneous written acknowledgement of her charitable gift from Fix Our Ferals, she's out of tax deduction luck. The court found that her cat care expenses of $250 or more were not deductible in the instances where she couldn't provide the paperwork substantiating her gifts.
The Tax Court finding did not specify exactly what Van Dusen owes the IRS for the 2004 tax year. Given that the IRS disallowed all her claims and then reinstated those of less than $250, her final bill is probably a tiny bit less than the four-or-so grand the IRS wanted.
If you're interested, the Tax Court opinion details all the cat care costs Van Dusen claimed and exactly which ones the court ruled were and weren't deductible.
And finally, remember that the tax law on charitable documentation doesn't specifically require a taxpayer to attach the contemporaneous written acknowledgment of a donation to the tax return.
But, as the Van Dusen case shows, you need to have this information if the IRS questions your charitable gift deduction.
- Volunteering is laudable, but it's not tax deductible
- Deductions demand documentation
- Tax rules for charitable giving
- Heat wave calls for cool charitable gifts
- Keep the giving going
- Tax record keeping time
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