A recent tax court case brought attention to the fact that adequate documentation is required for out-of-pocket expenses incurred while performing volunteer activities for a charitable organization.
A volunteer (we’ll call her Hazel) was housing 70 to 80 cats in her house for cat rescue missions in her community. It was necessary, and within the mission of the cat charities, to provide this long-term foster care. It was a practice of the cat missions to temporarily house sick, old, or just-out-of-surgery cats in volunteer’s personal residences. This was a practice in which the cat missions encouraged their volunteers to participate.
Hazel claimed a $12,000 charitable deduction on her tax return for the care of the rescue cats in her care for the year. These expenses included vet bills, increases in utilities, attributed to the increase in laundry, and garbage bill increases. The I.R.S. denied Hazel’s deductions because they felt her efforts were not benefiting the cat rescue organization.
Hazel went to tax court and the results are an excellent reminder of the recordkeeping requirements for the deduction of out-of-pocket expenses.
The first requirement, are that the expenses are for the benefit of the charity. A safe harbor would be that the services and expenses are under the control or supervision of the charity and that Hazel had a strong affiliation with the charity.
Then Hazel needed to comply with the I.R.S. recordkeeping rules. These rules require that a deduction be supported by a cancelled check, a receipt or charity acknowledgement or a reliable written record. Hazel did not have acknowledgement from the cat charity, nor did she have many receipts. She was however, able to provide her check records and the Court ruled partially in her favor on this count.
Unfortunately, Hazel relied on a friend to compile her deduction of $12,000 and could not provide the methodology used in its calculation. This caused some reductions in the amounts she was granted for deduction.
Hazel lost more of her deduction due to the fact that she did not have written acknowledgement from the cat missions. This is vital for a deduction and is an excellent volunteer goodwill gesture by the mission. A charity that relies on volunteers should be sure to inform volunteers of the types of expenses they should incur, what their recordkeeping requirements are and then provide them with I.R.S. approved acknowledgments.
Ultimately, Hazel was allowed less than 50% of her original deduction. Had she known the requirements, she might have won 100%!
Kathy E. Hostetler, CPA