The Wall Street Journal reported last year on a U.S. Tax Court ruling that will affect millions of dollars in annual tax deductions by animal-rescue volunteers. The ruling brings some much-needed clarity to deducting unreimbursed expenses incurred by volunteers helping Internal Revenue Service-recognized charities like the Yavapai Humane Society (YHS).
The case involved Jan Van Dusen, who appeared before a U.S. Tax Court judge and a team of IRS lawyers more than a year ago regarding a tax deduction for taking care of 70 stray cats.
In June 2011, the Tax Court ruled Van Dusen could take $12,068 in charitable deductions for expenses incurred while taking care of the cats for an IRS-approved charity, Fix Our Ferals. The deductions were for cat food, veterinarian bills, kitty litter, a portion of her utility bills and other items such as paper towels and garbage bags.
The decision, in Van Dusen v. Commissioner, paves the way for volunteers to deduct unreimbursed expenses that further a rescue group's mission, such as fostering homeless animals.
It also clarifies rules for deducting unreimbursed charitable expenses of $250 or more, especially if they involve use of a home. It affects donors to charities and religious groups, but not political organizations.
Prior to this ruling, tax advisors often warned clients taking such deductions to be prepared for an IRS challenge. This ruling informs the taxpayer just how to successfully prepare for that challenge - with records of pertinent expenses and a letter from the charity acknowledging the gift.
Van Dusen, 59, is a former family law attorney living in Oakland, Calif. She lives alone in a 1,500-square-foot home in a modest neighborhood with seven cats of her own. As a volunteer for Fix Our Ferals, whose mission is to trap, neuter and care for stray cats, Van Dusen provided foster care for about 70 feral cats.
Van Dusen tried to take the deductions on her 2004 tax return, but the IRS considered them nondeductible personal expenses. In 2009, the case wound up in court. Van Dusen knew little about tax law before the trial, but represented herself because she couldn't afford a lawyer.
She said her pretrial encounters with IRS agents were "intimidating," and she felt that in court the IRS lawyers "tried to portray me as a crazy cat lady." However, Judge Richard Morrison demonstrated considerable patience: "He had to go through all (my) receipts from Costco and ask questions like, 'What were these paper towels used for?'"
In his 42-page decision, Judge Morrison agreed with many of her arguments. He allowed her to deduct most of some bills and half of others for care of the feral cats, ruling they were unreimbursed expenses incurred while helping a charitable group in its mission. He curtailed the total deduction somewhat because she didn't have a valid letter from Fix Our Ferals acknowledging her volunteer work for expenses of $250 or more.
There are an estimated 11 million volunteers nationwide who do volunteer work with local shelters and rescue groups, and many of these volunteers spend up to $2,000 of their own money a year to help animals in need, with some spending up to $15,000 a year.
This is the first time the court has addressed these types of expenses, and this ruling sets an important precedent for the many foster-care-giving volunteers in our community. Check with your tax advisor on the impact this ruling may have on your volunteer efforts.
If you are interested in YHS's Foster Care program or becoming a foster care giver, visit http://www.yavapaihumane.org/ or contact YHS's foster placement coordinator at email@example.com or 445-2666, ext. 16.
Ed Boks is the executive director of the Yavapai Humane Society. He can be reached at firstname.lastname@example.org or by calling 445-2666, ext. 21.