The Tax Court has put animal foster care volunteer expenses on the same plane as  foster child care expenses in deciding that volunteer unreimbursed expenses in performing services for a qualified charity are tax- deductible charitable contributions provided the required statutory documentation is provided and maintained.  The case of Jan Elizabeth Van Dusen v. Commissioner, 136 T.C. No 25 (June 2, 2011) involved feline foster care expenses but has broad application to a wide range of animal volunteer groups.  Thus, IRS may appeal although there is no real debate that unreimbursed expenses incurred in performing volunteer services for a qualified charity are deducible, if substantiated, while the value of time devoted is not deductible (Reg. Sec. 1.170A-1(g)). IRS questioned whether the services in this case were performed for the charity and whether the non-cash documentation rules or cash donation documentation rules applied.

The court had little difficulty in finding that the petitioner was a volunteer for the charity.  The court found that it was sufficient that the charity had encouraged the volunteer services and indirectly oversaw petitioner’s work; it was not required under Reg. Sec. 1.170A-1(g) that the services performed be under the direct control of the charity. Most of the court’s decision deals with the substantiation rules.  The code and regulations are not specific whether the cash or non-cash documentation rules apply to unreimbursed expenses.  The court found that the Regulations implicitly categorize unreimbursed expenses as cash contributions and thereby suggest that the record keeping requirements of Reg. 1.170A-13(a) for contributions of money apply to unreimbursed charitable expenses.  That finding, however, was not the end of the court’s struggle with the absence of specific documentation rules for unreimbursed expenses as the cash contribution record keeping rules are not easily applied to unreimbursed expenses.

The court in allowing the volunteer’s expenses for such items as pet food and vet bills had to wriggle around ambiguity in the law regarding required substantiation in finding that the petitioner had substantiated specifically identified expenses, each under $250 while finding that the petitioner did not keep the required documentation for each expenditure  over $250.   Petitioner produced documents that included check copies, bank account statements, credit card statements and a vet payment history, to mention some, all of which were recorded at the time of purchase or service.   The court found these sufficient proof of payment applying a preponderance of the evidence standard.

Volunteer expenditures under $250 the Reg requires either a cancelled check, receipt or letter from the charity showing the date and amount of the contribution, or, other reliable written records showing the same information.  These rules, the court noted are problematic for a volunteer because the expenses although evidenced by check, receipt, or, other reliable evidence. will not show the name of the donee charity for which the expenses are paid.  The court found that the Reg in question, being procedural and not substantive, required only substantial compliance, which was satisfied by the records kept by Petitioner. The court noted, “the regulation was plainly not written with unreimbursed volunteer expenses in mind.”

With regard to expenditures of $250 or more, however, the record keeping requirement for unreimbursed expenses is more specific, requiring that, in addition to documenting the amount and date of payment, the volunteer must obtain from the charity before filing his or her tax return or its due date, if earlier, a contemporaneous written acknowledgment describing the services provided (Reg. 1.170A-13(f)(10)).

It is questionable what purpose is achieved by requiring the confirmation from the charity to be received prior to filing in order to be allowed a charitable deduction for cash donations or unreimbursed expenses.  The requirement would be more understandable were it limited to event related donations such as charity gala events or university memberships required to obtain season tickets to college sporting events.  These donations clearly involve a return remuneration while most donations are of money or property that is unconnected to a quid pro quo as usually is the case with volunteer expenses. 

IRS has not published rules authorized by Sec. 170(f)(8)(D) that would allow charities to acknowledge gifts in a report filed with IRS containing the required information.  Because IRS has not prescribed such regulations, CCA 201120022 (5/20/2011) states that the publishing by a charity of such confirmation in an amended Form 990 does not satisfy the documentation required by Sec. 170(f)(8)(B).

Sec. 170(f)(8)(E) of the Code gives IRS broad authority to “prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.” Thus, Congress has provided the Treasury and IRS with express authority to exempt certain contributions from the new substantiation requirements.   IRS should consider exempting from the requirement to obtain a confirmation letter before filing, for unreimbursed cash expenditures made in performing services for a charity. IRS should also reconsider its decision to not issue regulations permitting filing by the charity of a report with IRS in lieu of the confirmation letter or dispensing with the letter requirement for non-event related cash donations.  Congress was most concerned with the quid pro quo donation in enacting Sec. 170(f)(8) as part of OBRA-93.  Requiring a confirmation letter be obtained before filing is simply another speed trap in the tax law.  Innocents who have made good faith cash donations and volunteers who keep their cancelled check or credit card statement as required are penalized if the charity neglects to send the letter on time.

Copyright 2011 by Robert S. Steinberg, Esquire

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