Great news for employees and volunteers of rescues and shelters — thanks to the recent case of Van Dusen v. Commissioner, if you are an employee or volunteer for a legitimate 501(c)(3) charitable organization, you may be able to claim deductions for your unreimbursed expenses.
Fix Our Ferals is a 501(c)(3) organization specializing in trap-neuter-release (TNR) for cats living on the streets or in the wild. If any of the cats were tame, Fix Our Feral volunteers would try to find adopters for those cats. Some cats were released to their original locations or other safe locations. Some cats that were elderly, injured or feral stayed with the volunteers for extended times or indefinitely.
In 2004, Jan Van Dusen volunteered and fostered cats for Fix Our Ferals. Van Dusen had 70 to 80 cats in her 1500 square foot home. Seven of them were her personal pets. Most of the others were Fix Our Feral cats, but some were from other organizations that Van Dusen worked with.
Van Dusen claimed a $12,068 charitable contribution deduction on her 2004 taxes for expenses related to taking care of Fix Our Ferals’ foster cats. The IRS caught up with Van Dusen, claiming she underpaid her taxes. Van Dusen and the IRS worked out some matters, but the issue over the Fix Our Ferals deduction went to trial in the United States Tax Court.
Section 170(a) of the Tax Code allows three types of deductions for charitable contributions if a taxpayer:
- Donates money or property directly to the charitable organization.
- Places money or property in trust for the charitable organization.
- Who performs services for a charitable organization incurs unreimbursed expenses.
Judge Morrison was confronted with whether Van Dusen’s deduction was proper as the third kind of deduction. There was no question Van Dusen provided services for Fix Our Ferals, and that Fix Our Ferals was a legitimate charitable organization. The question boiled down to whether Van Dusen was claiming proper unreimbursed expenses.
Van Dusen sought reimbursement for everything from vet bills, cat food, litter and utilities to reinstating her Costco card and repairing her wet/dry vacuum. As evidence, Van Dusen presented copies of checks, bank account statements, credit card statements, veterinary client account information, a Costco payment history and proof of payment for her water, gas, electricity and waste removal bills. She had thrown away some receipts, and had also intermingled expenses for her own cats, the Fix Our Ferals cats and the cats from other organizations.
In many ways, Judge Morrison was quite forgiving to Van Dusen for her record keeping. He found that her documentation substantially complied with the kinds of records a taxpayer is required to keep. Because Van Dusen had spent the vast majority of her resources on Fix Our Feral cats, he also was not overly distressed about the fact that she had co-mingled expenses with those cats, her own cats and other cats. Judge Morrison easily concluded that 90% of Van Dusen’s vet expenses and pet supplies and 50% of her cleaning supplies and utility bills were deductible foster cat expenses.
However, Judge Morrison went on to say that Van Dusen had to adequately substantiate her deductions. For contributions under $250, Judge Morrison held that Van Dusen had to comply with Tax Code Section 1.170A-13(a), which governs monetary contributions to a charitable organization. Proper substantiation would be:
- A cancelled check with the name of the donee charitable organization; or
- A receipt from the donee showing the donee’s name and the date and amount of the contribution; or
- Other reliable written records showing the donee’s name and the date and amount of the contribution.
For the contributions under $250, Judge Morrison once again gave Van Dusen a break. Van Dusen’s records did not comply strictly with the Tax Code requirements because they did not show Fix Our Ferals’ name – only her name and the name of the store or payee. Nonetheless, Judge Morrison found that her documentation substantially complied with the requirements.
For contributions over $250, Judge Morrison held that Van Dusen also had to comply with Section 1.170A-13(f)(1). This Section requires a donor to produce a contemporaneous written acknowledgment from the donee that:
- Describes the services provided by the taxpayer and
- Explains whether the donee provided any goods or services in connection with the unreimbursed expenses.
- If the donee provided goods or services, the letter must also describe those goods and services and provide a good faith estimate of the goods and services.
Van Dusen had no letters from Fix Our Ferals substantiating any of her expenses over $250, and Judge Morrison cut her no slack on these expenses.
If you think you may be eligible for deductions, here are the lessons to take from this case:
- Make sure you are dealing with a legitimate 501(c)(3)! (More on this to come…)
- If you work or volunteer with multiple organizations, keep separate records for each organization, and do not co-mingle those expenses with expenses you incur for your own pets.
- Keep your receipts and records!
- Watch the substantiation requirements, and be particularly careful with contributions over $250. If you make a contribution over $250, get a letter from the charity right away, and make sure it has all the necessary information.
- Only deduct unreimbursed expenses. You still cannot take a deduction for services.
I cannot resist one obvious comment about this case. While I think it is wonderful that generous volunteers can now take deductions for animal welfare expenses, I would hate to see this ruling inadvertently encourage animal hoarding. Having 70 to 80 cats in one 1500 square foot residence smacks of a situation right here in Virginia, where Janet Hollins is being prosecuted for having had 77 cats and dogs in her Dale City townhouse. Hollins was found guilty of 77 counts of inadequate care of companion animals last year in General District Court. She she appealed to Circuit Court, and that case is currently set for a three-day jury trial starting on June 20.
The Hollins case underscores the importance of making sure the rescue you are working with is legitimate and following all the rules. (Stay posted for more on this in a future blogpost!) Having 77 companion animals in one townhouse violated not just the requirement to provide adequate space, exercise and care. Hollins was also thumbing her nose at Virginia’s statutory limit of no more than 50 companion animals per foster home, and Prince William County’s requirement to obtain a kennel license for households with more than four dogs.