TaxAlerts Tax Article
July 2011 | Written by: Karen Reed, EA
Last month the United States Tax Court decided that a California woman, described by many as a “cat lady,” would be allowed to deduct certain unreimbursed expenses relating to work she did with feral cats on behalf of a charitable organization in 2004. The court’s decision reinforces tax regulations which provide that expenses are deductible as qualified charitable contributions if you are able to prove that they are attributable to your charitable work for a qualified charity and you are able to provide the required substantiation.
For Jan Van Dusen, a lawyer who spent most of her nonworking hours caring for 70 to 80 feral “foster cats” in her home on behalf of Fix Our Ferals, a 501(c)(3) nonprofit organization, the case boiled down to three issues. Her first hurdle was to prove that her work with the foster cats was directly connected with an approved charity. Next, she had to prove that the expenses were both connected with and solely attributable to her charitable activities, and, finally, she needed to provide proper substantiation for the expenses that were deemed to be connected.
The IRS contended that Van Dusen had been an independent cat rescue worker whose services were unrelated to Fix Our Ferals and did not benefit the organization. The agency asserted that the mission of Fix Our Ferals consisted solely of “education and sterilization,” and therefore Van Dusen’s fostering of cats did not constitute services to Fix Our Ferals. The court found that the organization’s mission did, in fact, encompass foster care and concluded that Van Dusen had served the organization’s mission by fostering cats. The court also found that as a regular volunteer who performed substantial services for the organization, Van Dusen had demonstrated a strong connection with Fix Our Ferals in 2004.
Each of the expenses Van Dusen had deducted was examined by the court to determine whether or not it was connected with and solely attributable to charitable activities. When she could prove that she would not have incurred an expense if she had not fostered the cats, the court allowed the expense when the documentation rules were met.
The court determined that the recordkeeping requirements for contributions of money applied to Van Dusen’s situation, even though the contributions fell into the “noncash” category. The general rule is that donations of money under $250 are deductible only when there is a record of the contribution in the form of a written communication, such as a cancelled check, showing the name of the charity, the date of the contribution, and the amount of the contribution. Determining that Van Dusen met the recordkeeping requirement, the court allowed her expenses under $250 that were attributable to her charitable work.
For donations of $250 or more, a contemporaneous written acknowledgement from the recipient organization is required in addition to the proof of payment needed for smaller donations. To meet the contemporaneous rule, the statement from the organization must be issued on or before the earlier of: (1) the date the return was filed, or (2) the due date (including extensions) for filing the return. Since Van Dusen lacked the appropriate written acknowledgment from Fix Our Ferals for her expenses exceeding $250, the court ruled that she had not met the substantiation requirements and therefore she was not allowed to deduct any foster-cat expenses of $250 or more.
Although this was not a sweeping win for Van Dusen, her case paves the way for other taxpayers who do volunteer work for qualified charitable organizations. Expenses that are solely attributable to charitable work that is directly connected to a qualifying organization are deductible when they can be properly substantiated.