Deduction for Cat Expenses Get Second Life


The Tax Court permitted a deduction for a taxpayer’s unreimbursed volunteer expenses incurred while caring for foster cats in her home, since they were incurred “incident to the rendition of services” to a qualified organization. The court also held the recordkeeping requirements for cash contributions under $250 should apply to unreimbursed volunteer expenses under that amount and that the taxpayer had substantially complied with those requirements. However, the court denied deductions for expenses of $250 or more since the taxpayer had failed to receive a contemporaneous written acknowledgment from the charitable organization as required by IRC § 170(f)(8).


Unreimbursed volunteer expenses are deductible as a charitable contribution if the taxpayer provides services to a charitable organization and, as a result, incurs additional expenses. The contributions must be substantiated following the guidelines of Treas. Reg. § 1.170A-13. Unreimbursed volunteer expenses of $250 or more must be substantiated by a contemporaneous written acknowledgment from the charitable organization; however, the regulations are silent concerning similar expenses of less than $250.


In 2004, Jan Elizabeth Van Dusen incurred expenses while providing foster care for feral cats in her Oakland, Calif., home. She was a volunteer for Fix Our Ferals, a qualified charitable organization that traps and neuters feral cats before returning them to the wild or placing them in an adoptive home. In 2004, Van Dusen cared for 70 to 80 cats (including seven of her own), incurring veterinary, pet and cleaning supply, utility and other expenses, of which she deducted $12,068 on her 2004 income tax return. The IRS completely disallowed the deduction and determined a deficiency of $4,838. The IRS took the position that Van Dusen had acted independently rather than providing services benefiting the organization, since the organization’s charitable mission was to sterilize cats and educate the public, not to provide cat foster care. It also said that her claimed expenditures had not been properly substantiated and that they had an inseparable personal component. Van Dusen petitioned the Tax Court for relief.


The court held that a portion of Van Dusen’s cat care expenses were incident to the rendition of services to Fix Our Ferals, since her care of the cats served the mission of the organization. The court permitted 90% of her total veterinary and pet supply expenses (since about 10% of the cats were her own) and 50% of her cleaning supplies and utilities, stating the percentages were a reasonable estimate of the additional costs she incurred caring for the feral cats. The court disallowed any portion of her membership fees at a discount retail store where she purchased her supplies, because she would have incurred those costs without caring for the feral cats.


The court held that the substantiation requirements for cash contributions (Treas. Reg. § 1.170A-13(a)) rather than property contributions (Treas. Reg. § 1.170A-13(b)) under $250 should apply to unreimbursed volunteer expenses under that amount, for three reasons:

(1) They are similar to cash contributions, in that volunteers usually use money to purchase goods or services.


(2) The required information for non-money contributions (Treas. Reg. § 1.170A-13(b)(2)(ii)) relates mostly to basis, value and use of donated property and thus would not be useful in an audit of unreimbursed volunteer expenses.


(3) The substantiation rules for contributions of $250 or more contain a paragraph pertaining to out-of-pocket expenses (Treas. Reg. § 1.170A-13(f)(10)) and therefore “implicitly categorize unreimbursed expenses as cash contributions,” the court said.

Even though Van Dusen’s records did not include any of the specified documentation required for cash contributions, such as canceled checks, the court held that she had substantially complied with the requirements, since her records included the same information that would have been found on canceled checks. In Bond v. Commissioner, 100 TC no. 32, the court previously held that the requirements of Treas. Reg. § 1.170A-13 were directory or procedural, requiring substantial compliance by taxpayers, not strict compliance.


  Jan E. Van Dusen v. Commissioner , 136 TC no. 25


By Charles J. Reichert, CPA, instructor of accounting, University of Minnesota–Duluth.


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