A tax court has held that a taxpayer could claim a charitable contribution deduction for some of her foster cat expenses for Fix Our Ferals, a recognized charitable organization that specializes in the neutering of wild cats to humanely control feral cat populations. The court ruled that the taxpayer substantially complied with the recordkeeping requirements for less than $250. These expenses qualified as unreimbursed expenditures incident to the rendition of voluntary services to a charitable organization. However, the taxpayer’s other claimed charitable expenses were denied for lack of substantiation.
To claim a charitable contribution, a taxpayer must meet some stringent recordkeeping requirements. The substantiation rules are generally broken down into two general categories: cash contributions and non-cash contributions, as follows:
- Cash Contributions – A taxpayer can’t deduct any contribution of a cash, check, or other monetary gift unless she or he maintains as a record of the contribution a bank record or a written communication from the donee organization, showing its name plus the date and amount of the contribution. In addition, no charitable deduction is allowed for any (cash or property) contribution of $250 or more unless the taxpayer substantiates it by a contemporaneous written acknowledgment (not just a cancelled check) from the donee.
- Non-cash Contributions – Non cash contribution are broken down into three categories:
- Deductions of Less Than $250 – A taxpayer claiming a non-cash contribution must obtain and keep a receipt from the charitable organization, showing:
- The name of the charitable organization,
- The date and location of the charitable contribution, and
- A reasonably detailed description of the property.
Note: The taxpayer is not required to have a receipt where it is impractical to get one (for example, if the property was left at a charity’s unattended drop site).
- Deductions of at Least $250, but Not More than $500 – If a taxpayer claims a deduction of at least $250, but not more than $500 for a non-cash charitable contribution, he or she must have and keep an acknowledgment of the contribution from the qualified organization. If the contributions were made by more than one contribution of $250 or more, the taxpayer must have either a separate acknowledgment for each or one acknowledgment that shows the total contribution. The acknowledgment(s) must be written and include
- The name of the charitable organization,
- The date and location of the charitable contribution,
- A reasonably detailed description (but not necessarily the value) of any property contributed,
- Whether or not the qualified organization gave the taxpayer any goods or services as a result of the contribution (other than certain token items and membership benefits), and
- If goods and or services were provided to the taxpayer, the acknowledgement must include a description and good faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that is generally not sold in a commercial transaction outside the donative context, the acknowledgment must say so; it does not need to describe or estimate the value of the benefit.
- Deductions Over $500 but Not Over $5,000 – If a taxpayer claims a deduction over $500 but not over $5,000 for a non-cash charitable contribution, he or she must have the same acknowledgement and written records as for contributions of at least $250 but not more than $500 described above. In addition, the records must include:
- How the property was obtained; for example, by purchase, gift, bequest, inheritance, or exchange.
- The approximate date the property was obtained or, if created, produced, or manufactured by the taxpayer, the approximate date the property was substantially completed.
- The cost or other basis and any adjustments to the basis of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. However, this requirement does not apply to publicly traded securities. If the taxpayer is not able to provide information about either the date the property was obtained or the cost basis of the property and there is reasonable cause for not being able to provide this information, she or he should attach a statement of explanation to the return.
- Deductions Over $5,000 – If the taxpayer claims a deduction of over $5,000 for a charitable contribution of one property item or a group of similar property items, he or she must obtain acknowledgement from the charitable organization. In determining whether the deduction is over $5,000, the taxpayer should combine the deductions for all similar items donated to any charitable organization during the year. Generally, the taxpayer must also obtain a qualified written appraisal of the donated property from a qualified appraiser.
IRS Position – The taxpayer’s expenses consisted primarily of payments for veterinary services, pet supplies, cleaning supplies, and household utilities. She claimed a $12,068 charitable contribution deduction for the expenses on her 2004 tax return. IRS challenged the deduction, taking the position that the taxpayer didn’t render services to a qualifying charitable organization, that she failed to substantiate her expenses, and that her expenses were indistinguishable from her personal expenses.
Tax Court Position – The tax court held that the recordkeeping requirements for contributions of money governed unreimbursed volunteer expenses of less than $250 because they were acceptable substitutes for canceled checks under the substantial compliance doctrine. The taxpayer’s check copies, bank account statements, credit card statements, pet hospital client account history, Costco purchase history, and utility invoices were sufficient to substantiate her foster-cat expenses of less than $250. Thus, she could deduct these foster-cat expenses up to $249.
However, the taxpayer couldn’t deduct the additional foster cat expenses of $250 or more because she failed to obtain the contemporaneous written acknowledgment from the charitable organization that was required under the record keeping requirements.