Paul Husband, an equine tax attorney based in California, will be contributing a series of guest posts over the next few weeks on the 2011 tax opinion, Van Dusen v. Commissioner. There are many valuable lessons contained in this opinion from which equine charities might benefit. Enjoy!
In the context of deductions claimed by a woman who kept 70 to 80 “foster” cats, in addition to her own seven pet cats, the U.S. Tax Court addressed the deductibility of out of pocket expenses incurred as a volunteer for a properly qualified IRC Section 501(c)(3) charity in Van Dusen v. Commissioner, (2011) 136 T.C. 515.
There is no deduction whatsoever available for the value of labor or services provided when an individual volunteers to do work for a charity, even though a gift of money to the same organization would be deductible. Nonetheless, out of pocket expenses incurred during the course of performing services for a qualified charity may be deductible if the expenses are sufficiently related to the charitable purpose of the organization, and substantiation and record keeping requirements are met.
Happy Valentine’s Day!
There are lengthy and complex Treasury Regulations concerning the deductibility of gifts to charity, with separate rules for gifts of property versus gifts of money.
Before getting deeper into Van Dusen, lets take a quick look at the requirements and limitations provided by the Treasury Regulations concerning the deductibility of out of pocket expenses incurred in the course of volunteer work for a § 501(c)(3) charity.
Less Than $250
Generally, for expenses of less than $250, to justify a tax deduction for out of pocket expenses for a charitable work, the donor must maintain, as a record of the contribution, either:
(a) a bank record; or
(b) a written communication from the donee (the charity) showing:
(1) The name of the donee organization;
(2) The date of the contribution; and
(3) The amount of the contribution.
More Than $250
For expenses which are incurred in the course of doing volunteer work for a charity which are more than $250, in addition to meeting the requirements for expenses less than $250, the donor must have a contemporaneous written acknowledgment from the donee, which must include:
(a) The amount of cash and a description (but not the value) of any property other than cash which was contributed;
(b) Whether the donee provided any goods or services in consideration for any part of the contribution; and
(c) A description and a good faith estimate (by the donee) of the value of those goods or services.
The term “contemporaneous” as used in the Treasury Regulations concerning a written acknowledgment of contributions of out of pocket expenses related to charitable work means a written acknowledgment prepared on or before the earlier of:
(a) The due date of the donor’s tax return, including extensions; or
(b) The date that the donor files his/her/its tax return.
The acknowledgment requirement for unreimbursed out of pocket expenses can be met if:
(a) The taxpayer has “adequate records” to substantiate the amount of the expenditures; and
(b) The taxpayer obtains a statement prepared by the donee that, in addition to the required information listed above for contributions of less than $250, the statement must describe the services and expenses performed, incurred and/or received. See Treasury Regulation § 1.170A-13(f)(10).
The $250 level is an important line of demarcation. Above it, the contemporaneous written acknowledge from the donee must be obtained.
Multiple Gifts Under $250 Do Not Trigger Higher Standard
On the bright side, if a particular donor makes several gifts of unreimbursed expenses incurred doing volunteer work for a charity in amounts less than $250 each, even if they add up to more than $250, they need not be aggregated for the purpose of triggering the contemporaneous written requirements set forth in Treasury Regulation 1.170A-13(f) for contributions of more than $250.
©B. Paul Husband 2012