Boards and commissions of municipalities, school districts, other local governments and political subdivisions appoint volunteers to perform their government purpose. Hospitals, community service organizations and other charitable organizations rely heavily on volunteers to help them fulfill their missions and provide services. The Internal Revenue Code sets forth guidelines for deduction of expenses incurred by volunteers and records that volunteers and qualified organizations must keep.
IRS Publication 526 provides a detailed explanation of deductible charitable contributions including deductible out-of-pocket expenses incurred by volunteers. IRS Publication 1771 provides an explanation of the rules that apply to substantiation and disclosure of tax-deductible charitable contributions by donors and qualified organizations.
What Can a Volunteer Deduct?
Certain expenses ("volunteer expenses") incurred by a person in connection with serving as a volunteer to a qualified organization may be a tax-deductible charitable contribution by the volunteer. In order to be eligible to deduct volunteer expenses, the volunteer must file a Form 1040 and itemize deductions on Schedule A. Volunteers who do not file a Form 1040 or who elect the standard deduction may not claim any deduction for volunteer expenses.
Similar to cash contributions, volunteer expenses may only be deducted if incurred for volunteer services to a qualified organization. Qualified organizations are generally limited to (a) nonprofit entities that have been recognized by the IRS as 501(c)(3) organizations (and in some cases eligible nonprofit entities with applications for 501(c)(3) recognition pending with the IRS), (b) churches, and (c) federal and state government and any of their political subdivisions (including municipalities and school districts) that perform substantial government functions. To determine whether a nonprofit entity is a qualified organization, a volunteer may ask the organization or go to the IRS website (www.irs.gov/charities) and search for the organization under the tab "search for charities."
Deductible volunteer expenses are those out-of-pocket expenses that are (1) not reimbursed, (2) directly connected to service as a volunteer, (3) incurred by the volunteer solely in connection with the service provided to a qualified organization, (4) if the qualified organization is a government organization, incurred by the volunteer solely for public purposes, and (5) not personal, living or family expenses.
Neither the value of a volunteer's time or services, nor the value of free use of a volunteer's space or equipment is deductible.
IRS Publication 526 provides a detailed explanation of out-of-pocket expenses which volunteers may deduct as a charitable contribution on Schedule A to Form 1040. Common volunteer expenses include clothing, babysitting and travel expenses.
Clothing expenses: The cost of the purchase and upkeep of uniforms which must be worn when serving as a volunteer may be deductible. The uniforms must not be suitable for everyday use. Costs incurred for the purchase and upkeep of clothing which is required to be worn (such as t-shirts with an organization's name) but is suitable for everyday or non-volunteer wear are not deductible.
Babysitting expenses: Volunteer expenses for babysitting and child care are not deductible.
Travel expenses: Volunteer expenses for travel away from home for the purpose of performing services for a qualified organization may only be deducted if the expenses are not reimbursed and if there is no significant element of personal pleasure, recreation or vacation involved. Even if a volunteer makes a payment to the qualified organization and the qualified organization pays the travel expenses, the volunteer's payment is deductible only if there is no significant element of personal pleasure, recreation or vacation involved in the travel. The part of a per diem or travel allowance received by a volunteer from a qualified organization that exceeds the amount of travel expenses eligible for deduction is included in the volunteer's income.
Volunteer expenses directly related to use of a volunteer's car in providing volunteer services are deductible. Direct vehicle costs include the cost of gas and oil, parking and tolls. Indirect costs and expenses such as costs of repair and maintenance, insurance, tires, depreciation and registration are not deductible. Instead of deducting the actual cost of gas and oil, volunteers may deduct the standard mileage rate of 14 cents per mile. The standard mileage rate for volunteers is significantly less than the standard mileage rate allowed for business travel.
Recordkeeping by Volunteers
To deduct eligible volunteer expenses, volunteers must have receipts or other records to prove the amount of the expenses. To deduct a volunteer expense of $250 or more, the volunteer must have a contemporaneous written acknowledgment from the qualified organization to which the volunteer services were provided. The acknowledgment must contain (1) a description of the services, (2) a statement of whether or not the organization provided goods or services (other than intangible religious benefits) to reimburse the volunteer, (3) a description and statement of the fair market value of those goods or services provided, and (4) if the only benefit was an intangible religious benefit, a statement to that effect. The acknowledgment must be obtained by the volunteer on or before the earlier of the date the volunteer files his/her tax return or the due date (including extensions) of his/her tax return.
For automobile expenses, volunteers should keep reliable records that reflect the miles driven, dates of travel, the name of the qualified organization, a description of the volunteer work that required use of the automobile and if actual costs (such as parking, tolls or gas) are being deducted, invoices or other evidence of the actual costs.
Volunteers should keep records supporting a deduction for volunteer expenses for three years after the date the return is filed.
Recordkeeping by Qualified Organizations
In order for volunteers to deduct a volunteer expense of $250 or more, the volunteer must obtain a contemporaneous written acknowledgment from the qualified organization.
A charitable organization filing Form 990 is required to disclose the number of full-time and part-time volunteers (including volunteer members of the organization's board) who provided volunteer services to it during the reporting year. The IRS permits charitable organizations that do not keep track of the number of volunteers or report the number of volunteers elsewhere (for example, in grant proposals, annual reports or websites) to provide a reasonable estimate.
Hiscock & Barclay has substantial experience in these areas, representing municipalities, school districts and other governmental entities as well as numerous not-for-profits in finance, contracts, tax and governance issues. Should you have questions regarding any of these matters, please contact Raymond N. McCabe at (716) 566-1408 or rmccabe@hblaw.com, or Jean S. Everett at (202) 552-7392 or jeverett@hblaw.com.