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Case Study: Foster Care Expenses May Be Deductible, According to IRS Opinion

Fact Sheet| Animal Shelter, Feral Friends Network, Trap-Neuter-Return

On her 2004 income taxes, a volunteer for a San Francisco-area Trap-Neuter-Return 501(c)(3) nonprofit, claimed a tax deduction for expenses she incurred while fostering cats on behalf of the nonprofit’s TNR program. She attempted to deduct money spent on both short-term pre- and post-surgery care for feral cats and long-term fostering of socialized cats looking for adoptive homes.

Although the volunteer caregiver fostered the cats for the organization, she received no reimbursement for any of the money she spent on the cats’ care. Though the IRS initially denied her deductions, the Tax Court eventually held that her out-of-pocket expenses from caring for the cats were charitable contributions to the nonprofit, and allowed her to deduct the cost of items like cat food, kitty litter, and other cat-specific supplies on Schedule A of her tax return.

The volunteer caregiver also devoted a large amount of her living space to this volunteer work. Because she housed approximately 70 cats over the course of the year, her electricity and water bills and expenses for cleaning supplies were significantly higher than if she had not fostered the cats. The court allowed her to deduct 50% of the utility bills, as well as portions of cleaning supplies.

(Note: This case did not address expenses for trapping or for ongoing care of cats in feral cat colonies—just care around the time of neutering surgeries and fostering for adoption.)

What She Was Allowed to Deduct—And What She Was Not

Because she could directly prove that they were incurred on behalf of her volunteer work for the 501(c)(3), the caregiver was able to deduct the following expenses incurred on behalf of her foster cats:

  • Cat food
  • Kitty litter
  • Cleaning supplies
  • Veterinary care
  • Because the caregiver dedicated so much of her house to caring for foster cats, she was also able to deduct 50% of her expenses for household utilities and laundry detergent.

She was not able to deduct:

  • Expenses related to the care of her pet cats
  • Any flat-fee costs that she would have incurred otherwise, such as car expenses or a Costco membership
  • Veterinary expenses over $250 each, for which the nonprofit organization did not provide a letter substantiating the expense

Why She Was Allowed to Claim These Deductions

The volunteer caregiver was able to deduct part of her expenses as a charitable contribution for some very specific reasons.

  • She was a volunteer on a behalf of a 501(c)(3) nonprofit whose work was performed on behalf of the nonprofit, not solely on her own behalf.
  • The expenses she incurred helped further the nonprofit’s mission.
  • She received no reimbursement for expenses from the organization.
  • She provided proper documentation for the expenses.

Unreimbursed expenses can only be claimed as a deduction when they are incurred in service of a nonprofit organization.

The volunteer caregiver was allowed to deduct the expenses because they were considered a charitable contribution to the nonprofit organization. People carrying out TNR on their own, unaffiliated with a nonprofit group, would not be eligible for the deductions she was granted.

Several factors help determine whether the taxpayer is providing services to a nonprofit organization: the strength of the affiliation between the taxpayer and the nonprofit, the organization’s ability to request services from the taxpayers, the organization’s supervision of the taxpayer’s work, and the taxpayer’s accountability to the organization.

In this case, the Tax Court held that the volunteer caregiver had indeed provided services to the nonprofit. She was a regular volunteer who worked closely with other volunteers from the organization. Through methods established by the nonprofit, including an internet message board and telephone hotline, she fulfilled requests for service. The organization encouraged and indirectly oversaw the volunteer’s work. Finally, the Court held that the volunteer served the organization’s mission by fostering cats.

Taxpayers may not deduct expenses from caring for their own pets.

The volunteer caregiver was not allowed to deduct any expenses related to caring for her own pet cats—only expenses she incurred on behalf of the nonprofit organization. If an expense is for both personal use and charitable purposes (for example, cat food) the portion of the expense incurred for charity may be deducted if it can be separated out with documentation.

Taxpayers must retain records of their expenses.

In order to claim a deduction on their tax return, caregivers must retain itemized bills and receipts or canceled checks. The records must be sufficient to show what was purchased and that it was the taxpayer who made the purchase. Without appropriate documentation, the IRS can disallow a deduction, even if it was validly incurred in the first place. In this case, the volunteer presented check copies, bank account statements, credit card statements, a Costco purchase history, an account history from her veterinarian, and utility bill invoices.

For expenses of $250 or more, a taxpayer must have a letter from the nonprofit to substantiate the expenditure.

In addition to records like receipts, for any expense over $250, the caregiver must provide the IRS with a letter from the nonprofit including a description of the services the taxpayer provided on behalf of the nonprofit. The letter should include a statement of whether the taxpayer received a reimbursement or anything else from the nonprofit in return for the expense. If the taxpayer did receive something in return, the nonprofit must state the value of that reimbursement. The taxpayer must receive this letter before they file their tax return, or by April 15 if they file late.

Download the full Tax Court opinion: PDF

According to the opinion released by the Tax Court in June 2011 (Jan Elizabeth Van Dusen, Petitioner v. Commissioner of Internal Revenue, Respondent), the good news is you absolutely can deduct TNR expenses—as long as the expenses are incurred on behalf of your work as a volunteer for a nonprofit 501(c)(3) organization, you were not reimbursed for those expenses, and you have proper documentation.