Tax Court: Charity Can Begin in Your Carby
Although your clients can’t deduct the value of the time and effort they devote to charitable causes, there is a silver tax lining according to a new Tax Court case.
If you pay expenses out of your own pocket – in other words, you’re not reimbursed by the charity – you can write off those costs, subject to the other rules for deducting charitable contributions. However, as shown by a new case, Farolan, TC Summary Opinion 2018-28, 5/30/18, you won’t qualify for a deduction if you don’t properly substantiate the expenses.
Typically, your client might incur expenses for driving in their own car on behalf of a charitable organization. Instead of keeping track of every expense attributable to charitable travel, they can deduct a flat rate of 14 cents per mile, plus charitable-related parking fees and tolls. But they still must be able to provide records showing the mileage and the charitable purpose.
During 2013, the taxpayer in the new case donated cash to various charitable organizations. She also attended religious services at a Catholic church where she has been a parishioner since 1995 and made cash contributions to the collections at the religious services.
As a parishioner, the taxpayer used her personal automobile to drive to feed the homeless during Thanksgiving and for transporting gifts from the church for a Christmas giving-tree collection and other similar events throughout the year. Among other charitable donations contested on the taxpayer’s 2013 return, the IRS disallowed a deduction of $401 that the taxpayer claimed for out-of-pocket driving expenses on behalf of the church. The taxpayer ended up taking the case to court.
At trial, the taxpayer testified that she estimated driving about 400 miles during 2013 to feed the homeless during Thanksgiving and for transporting the gifts from her church. But she did not provide a mileage log to substantiate any of the mileage expenses or any written communication or other reliable written record to show that she participated in these charitable activities.
Furthermore, even if the taxpayer had substantiated that she had driven 400 miles, her charitable contribution deduction would have been limited to $56 (400 miles x 14 cents per mile). Accordingly, the Tax Court ruled that the taxpayer is not entitled to any charitable contribution deduction for out-of-pocket transportation expenses related to driving for her church.
Of course, it requires additional work, but keeping track of actual driving expenses for charity is likely to produce a bigger deduction than the simplified flat rate. Unlike the comparable flat rate deduction for medical travel, which is indexed annually by the IRS, the charitable rate can only be changed by an act of Congress and hasn’t budged in decades.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...