Rulings handed down by the United States Tax Court are anything but easy reading. They’re usually long and complicated, and they frequently deal with obscure portions of the massive U.S. Tax Code that make sense to some tax attorneys and CPAs, but to almost no one else. Every now and then, though, a tax court decision has far-reaching implications.
Van Dusen v. Commissioner is one of those cases.
Anyone who volunteers for an animal rescue group that has IRS recognition as a charitable organization—it’s called 501(c)(3) status—should pay attention. The ruling doesn’t address horse rescues specifically, but the court’s reasoning might help reduce the financial burden of volunteering for your favorite equine charity.
Jan Elizabeth Van Dusen is a California attorney who does a significant amount of volunteer work for Fix Our Ferals, a group whose charitable work involves trapping feral cats, neutering them, and then returning the animals to the wild. Van Dusen provided foster care in her home for many of the cats while they recovered from surgery. During 2004, she had as many as 70 and 80 cats in her home, seven of which were pets. The rest were foster animals. She paid out-of-pocket for care of all the cats; expenses for the foster cats were not reimbursed by Fix Our Ferals.
Anyone who fosters animals, from cats and dogs to horses, knows that these outlays can quickly amount to some serious money. When Van Dusen filed her federal tax return for 2004, she claimed a charitable deduction of more than $12,000 for non-reimbursed expenses attributed to a "cat rescue operation." The Internal Revenue Service, not surprisingly, replied with a resounding "no."
The IRS generally allows deductions for charitable contributions, with some important limitations:
● The recipient organization must be recognized as such by the IRS (the important 501(c)(3) designation).
● The donation can be money given directly to the organization, money placed in trust for the group, or non-reimbursed expenses incurred while performing a service.
● The donation cannot be the monetary value of a volunteer’s time.
● Donations will not be allowed without proper documentation.
The IRS claimed that Van Dusen was an "independent cat rescue worker" whose efforts did not benefit Fix Our Ferals. The Tax Court disagreed, noting the Van Dusen had a "strong connection with Fix Our Ferals" and that she was a "regular volunteer who performed substantial services for the organization."
The Tax Court did not allow deductions for all of Van Dusen’s animal expenses. Because she could not separate the expenses for her pet cats from the foster cats, the Court calculated a percentage to be applied to the total outlays. The Court also allowed expenses under $250 based on Van Dusen’s receipts and canceled checks, but did not allow expenses of $250 or more because she did not have required acknowledgments from Fix Our Ferals.
The Van Dusen ruling has important implications for anyone who volunteers with an animal rescue and who intends to deduct expenses incurred on behalf of the organization. The expenses may be deductible under certain circumstances. (It’s important to emphasize "may" because this isn’t legal advice and each volunteer’s situation is different. Anyone who intends to deduct non-reimbursed volunteer expenses should consult an attorney or accountant for guidance.)
● The animal rescue organization must have IRS recognition as a legitimate charity.
● The charitable work must be related to the mission of the organization.
● Proper and timely documentation of expenses is required. For expenses under $250, receipts or canceled checks might be sufficient. Contemporaneous letters from the organization documenting the donation always are better, and are required for expenses of $250 or more.
● There must be no reimbursement (money, goods, or services) from the organization.
● Expenses for the volunteer’s own animals should be maintained separately from expenses incurred for the organization.
The IRS says that there are more than 1.5 million charitable organizations with 501(c)(3) status. A small number of those are animal rescue or welfare charities, and a smaller number still are horse rescues. The Tax Court ruling addressed one volunteer and a single animal welfare group, but the reasoning of the decision should apply across the board.
Do you consider possible tax deductions when deciding whether to volunteer your services to an equine rescue?