The Tax Court allowed a taxpayer to take a charitable deduction for expenses she incurred while taking care of cats for a charitable organization dedicated to cat neutering and rescue because her expenses were incident to services provided to a charitable organization.
Jan Van Dusen, a resident of Oakland, California, is an attorney who cared for cats in her private residence in 2004. Van Dusen volunteered for a Sec. 501(c)(3) charitable organization called Fix Our Ferals (FOF), whose mission is to engage in “trap-neuter-return” activities, which consist of trapping feral cats, neutering them, obtaining necessary medical treatments and vaccinations, and releasing them back into the wild. FOF enlists volunteers to perform these tasks. The volunteers usually return cats to their original neighborhoods, but sometimes the volunteers move the cats to safer neighborhoods.
The purpose of trap-neuter-return is to humanely control feral cat populations and ensure that the cats live in an environment where people are not hostile to them. FOF periodically organizes spay/neuter clinics and educates the public about trap-neuter-return as a solution to neighborhood cat issues. After being neutered, the cats must be housed temporarily in volunteers’ private residences while they recover. After the cats recover and are given all necessary medical treatments, they are usually returned to the area where they were trapped.
FOF is a decentralized organization. It has no formal administrative office. Instead, it uses a post office box, a telephone hotline, a website, and other internet- and phone-based methods of communication. Its official staff consists of a board of directors and a team of veterinarians. The organization relies on a base of volunteers who trap, transport, and foster cats, staff spay/neuter clinics, educate the public, screen phone calls, raise funds, and recruit volunteers. Some FOF volunteers are members of an informal internet message group through which they coordinate logistics and assist each other with cat-related issues. Volunteers also collaborate informally with other cat rescue groups and individuals. FOF does not commonly reimburse volunteers for expenses. However, it sometimes provides vouchers for free neutering services. It also reimburses volunteers for emergency care if complications arise after an FOF clinic has neutered a cat.
Van Dusen’s Work for Fix Our Ferals
Van Dusen was an FOF volunteer in 2004. She trapped feral cats, had them neutered, obtained vaccinations and necessary medical treatments, housed them while they recuperated, and released them. She also provided long-term foster care to cats in her home. In 2004, Van Dusen had between 70 and 80 cats, of which approximately 7 were pets.
Van Dusen obtained foster cats primarily through the trap-neuter-return work that she personally performed. She got the rest through a loose network of contacts, including FOF affiliates and the organization’s hotline and internet message board. Some of the cats she took care of in 2004 predated her affiliation with FOF or came from other cat rescue organizations.
Van Dusen’s Cat Care Expenses
Van Dusen paid out of pocket for most of her cat-care expenses. Vouchers covered some of the neuterings, but Van Dusen paid all other veterinary expenses, including tests, treatment, vaccines, and surgery.
Van Dusen expended significant amounts on in-home care as well. She purchased large quantities of pet and cleaning supplies. She renewed her Costco membership so she could buy cat food and cleaning supplies at lower prices. She repaired her wet/dry vacuum so she could easily clean the floors. Van Dusen incurred higher electricity and gas bills because she laundered many loads of cat bedding and ran a special ventilation system to ensure fresh air. The frequent laundering also increased her water bills. Her garbage bills increased because of the high volume of cat-related waste.
On her 2004 tax return, Van Dusen deducted $12,068 on Schedule A, Itemized Deductions, for noncash charitable contributions attributable to a “cat rescue operation.” The return stated that the $12,068 comprised $1,381 of supplies, $9,607 of veterinary bills, and $1,080 of utilities. Van Dusen did not identify clearly how she arrived at these numbers.
The IRS disallowed the entire amount of the deduction, contending that Van Dusen was an independent cat rescue worker whose services were unrelated to FOF and did not benefit the organization. Van Dusen challenged the IRS’s determination in Tax Court, claiming in her petition that she was entitled to the entire amount of the deduction claimed on her return. However, at trial she scaled back her claim to a portion of her expenses.
Under Sec. 170(a), a taxpayer may take a deduction for any charitable contribution. A charitable contribution is defined in Sec. 170(c) as “a contribution or gift to or for the use of” a charitable organization. Regs. Sec. 1.170A-1(g) states: “No deduction is allowable under section 170 for a contribution of services. However, unreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible may constitute a deductible contribution.” Regs. Sec. 1.170-13(a) sets forth the recordkeeping and substantiation requirements for expenses claimed as charitable deductions. Deductions over $250 require a contemporaneous written acknowledgment from the donee organization under Sec. 170(f)(8)(A).
The Tax Court’s Decision
The Tax Court held that Van Dusen’s care for foster cats was a service to FOF and that her expenses incident to the rendition of these services were deductible. The court based its decision on the strength of Van Dusen’s association with FOF. Citing Smith, 60 T.C. 988 (1973), and Saltzman, 54 T.C. 722 (1970), the court stated:
In determining whether a taxpayer has provided services to a particular organization, courts consider the strength of the taxpayer’s affiliation with the organization, the organization’s ability to initiate or request services from the taxpayer, the organization’s supervision over the taxpayer’s work, and the taxpayer’s accountability to the organization.
According to the Tax Court, Van Dusen had demonstrated a strong connection with FOF that made her expenses incident to providing services for the organization potentially deductible. She was a regular FOF volunteer who performed substantial services for the organization, engaging in both trapping and foster care, and worked closely with other FOF volunteers. In addition, the organization could initiate or request services from Van Dusen through individual volunteers, who would contact her by phone or online, and the organization encouraged and indirectly oversaw her work.
Van Dusen’s inability to trace all of her rescue work to FOF did not trouble the Tax Court, which noted that she had performed most of her work for the organization and that all the other organizations she provided services to were also organizations eligible to receive tax-deductible contributions under Sec. 170(c). It also found that although the FOF mission technically consisted of “education and sterilization,” its mission encompassed the foster care of cats.
Having held that Van Dusen could take a charitable deduction for expenses incident to her services to FOF, the Tax Court reviewed the various expenses she claimed to determine whether the expenses actually were incident to the services she provided to the organization and whether she could properly substantiate the expenses. The court disallowed some of her claimed expenses outright due to the lack of detail in the supporting documents for them. It also limited expenses in the category of veterinary expenses and pet supplies to 90% of the claimed amount and those in the categories of cleaning supplies and utilities to 50%, based on Van Dusen’s inability to show exactly how much of the amounts was related to her cat rescue activities.
In addition, the court allowed a deduction of only $250 for certain expenses that were in excess of $250 because Van Dusen had not received a contemporaneous written acknowledgment from FOF, as required by Sec. 170(f)(8)(a). However, the court allowed her to deduct all her expenses less than $250, finding that despite the many deficiencies in her records she had substantially complied with Sec. 1.170A-13(a)(1), which specifies what records are acceptable for substantiating cash contributions.
Although this ruling has been hailed by many animal rescue organizations and the media as essentially making all animal foster care expenses incurred under the auspices of a rescue organization per se deductible, practitioners should advise clients who have incurred these types of expenses that this may not be the case. The Tax Court could have easily decided either way under the specific facts of this case and Sec. 170 and the regulations, and any deviation from the specific fact pattern presented here may lead to a different result in the future. Equally important, taxpayers and practitioners should recognize that the Tax Court was lenient on the issue of the substantiation of expenses under $250. A different judge in a different case might find that a taxpayer with a hodgepodge of evidence similar to Van Dusen’s has not substantially complied with the Regs. Sec. 1.170-13(a)(1) substantiation requirements for contributions under $250.
Van Dusen, 136 T.C. No. 25 (2011)