This past Saturday, the Wall Street Journal ran a front-page article about a woman had taken approximately 70 cats into her home through a local charitable organization whose mission was to save stray cats.
The woman paid thousands of dollars in unreimbursed expenses to care for these “foster” cats, and she claimed these expenses on her tax return as charitable donations.
Upon audit, the IRS denied the woman’s claim to a charitable deduction for her cat care expenses, claiming that such expenses were non-deductible personal expenses.
Besides being a good Samaritan, the woman was also a former family law attorney. She decided to dispute the IRS’s denial of her charitable deduction and so she took her case to the United States Tax Court, representing herself against the IRS and its legal staff.
After a trial on the merits, the Tax Court found in favor of the woman, upholding her right to claim a charitable deduction for her foster pet care expenses, at least in part.
As pointed out in another Wall Street Journal article in the same Saturday, June 11 issue, a taxpayer must have a letter from the charitable organization to which a charitable donation has been made acknowledging the gift if the gift is more than $250. Thus, in this particular case, certain expenses incurred by the woman that were in excess of $250 were not deductible due to the the lack of an acknowledging letter from the charity in question. Still, smaller expenses were held to be valid charitable donations that were deductible on the woman’s return.
The lessons to be learned from this case are these–first, in order to claim unreimbursed expenses incurred by a taxpayer in furthering the charitable purpose of a charitable organization, you first must have a valid charitable organization.
In this case, the good Samaritan was taking care of cats she received through a valid 501(c)(3) organization. Simply taking care of stray animals that you find on the side of the road won’t allow you to claim a charitable deduction for your expenses. You must be working with and, in effect, providing “outside” services to a valid 501(c)(3) organization.
Second, you must get a letter from the charity to which you are providing services acknowledging your gifts that are in excess of $250. Failure to obtain this letter will mean that your donations in excess of $250 will be disallowed as charitable gifts.
Third, keep complete and contemporaneous records of all gifts you make to charitable organizations, particularly if you are providing charitable donations in the same manner as the woman in the Wall Street Journal article.
Fourth, if you think that the IRS is in error with respect to a claimed deduction or other matter that arises in an IRS audit, don’t automatically assume that you have no recourse or that your position has no merit. You may want to consult a tax advisor to discuss your situation.
Who knows? You might end up on the front page of the Wall Street Journal as the winner in a tax case.