Volunteering for a charity? Out-of-pocket expenses for service are deductible, but personal expenses are not

How does volunteer service affect your tax and accounting? If you’re a business owner or entrepreneur, chances are excellent that you’ve been asked to help out with your favorite not-for-profit organization. Without volunteers, many not-for-profit organizations would not be able to help as many as they do, and couldn’t afford to pay these volunteers fair wages for those services.

What’s deductible for volunteer work?

Charitable deductions for volunteer work are limited to actual out-of-pocket expenses. Volunteers can’t multiply the hours spent by their usual hourly rate and deduct that. If out-of-pocket expenses exceed $250, volunteers need written acknowledgement from the charity for those expenses, in the same way that donations of cash are acknowledged.

Travel expenses are deductible if most of a volunteer’s time away from home is spent “on duty” for the charity. However, if the main reason for the trip is personal enjoyment, those travel expenses are not deductible.

In addition, any out-of-pocket expenses must be incurred solely for the purpose of providing services for a charitable organization, and those services must be “subject to coordination, supervision, or oversight by the organization.” This requirement for oversight prevents abuse: Slapping a magnetic sign with the name of a favorite charity on a car doesn’t convert all the miles driven to charitable miles.

Case example

Likewise, as Robert Oliveri discovered in a recent tax court case, that means wearing a large crucifix and spreading the teachings of the Catholic Church with random members of the public at large didn’t convert his personal expenses to charitable deductions.

Mr. Oliveri retired from the Air Force in 1986 after 26 years of service. A devout Catholic, he co-founded Brothers and Sisters of the Divine Mercy in 1987. According to the organization’s charter, the organization was responsible to a laity organization within the Catholic Church. However, it had no documentation that the Catholic Church either approved of its activities or had any kind of supervisory relationship. No reports on the organization’s accomplishments were filed with the church or even with its members.

During 2012, the year of interest to the tax court, Mr. Oliveri served as president, brother superior and as one of the three directors. He and the other 13 members met periodically to discuss their evangelizing activities, but the organization had no formal procedures for directing the activities of members or monitoring results.

On his 2012 tax return, Mr. Oliveri reported charitable contributions of $39,979. Included in those deductions were expenses for renting small airplanes, advanced flying lessons, trips to visit family members, every meal he ate in restaurants that year, costs for his internet, home phone and cell phone, as well as cash and other gifts given directly to people in need.

“Everything is tied to evangelization”

Mr. Oliveri always wore a large crucifix and he considered “all of his contact with members of the public to be opportunities for evangelism.” Mr. Oliveri randomly evangelized to anyone he came in contact with, including airport staff, flight instructors and anyone he met in restaurants, including his servers, to whom he often gave generous tips. He also deducted the miles for his weekly drive to and from church for Sunday services. In his eyes, this constant evangelism converted personal activities into services performed for the organization.

The IRS and the tax court, however, disagreed.

While he did keep receipts and other documentation of those expenses, he had zero acknowledgement from either the organization or from the Catholic Church for those contributions. He also had no documentation that these expenses were incurred as part of any coordinated campaign of outreach or to further the goals of Brothers and Sisters, or the Catholic Church.

No deduction for personal expenses

A big sticking point for the court was that the primary beneficiary of his services was Mr. Oliveri himself, not the organization or the Catholic Church. For charitable expenses that have both a personal and charitable benefit, a taxpayer must demonstrate that the expense would not have been incurred had it not been for the service to the charitable organization. However, as the tax court judge wrote, “expenses are not made ‘to or for the use of’ a charitable organization merely because petitioner discusses religion while conducting the activity.”

Mr. Oliveri’s commitment to furthering the reach of the Catholic faith is commendable, and had he followed the rules for substantiation, the tax court probably would have accepted at least some of his deductions. This case serves as a reminder to make sure your clients get acknowledgement from charities for out-of-pocket expenses, or they may risk losing those deductions!

Follow up with your tax accountant

As always, it’s best to check with your tax accountant to ensure you’re in compliance. If you do not have an accountant or need help finding one, check out Intuit’s Find-a-ProAdvisor listings and search for “tax and financial planning.”