When Jan Van Dusen claimed $12,068 in expenses for cat care on her 2004 federal income tax return, she had no idea that it would lead to a battle with the Internal Revenue Service and a precedent-setting decision by the U.S. Tax Court.
Van Dusen, a volunteer for California cat charity Fix Our Ferals, provided foster care in her home for about 70 stray and feral cats. The expenses she deducted included food, veterinarian bills, litter, a portion of utility bills, and other items such as paper towels and garbage bags. But the IRS denied the deductions, claiming them as nondeductible personal expenses.
In 2009, Van Dusen’s case went to Tax Court, a national venue for tax disputes of all sizes. There, taxpayers can argue their cases. The court’s decisions set precedents about future tax claims.
Although Van Dusen is a former family law attorney, she didn’t know much about tax law before the trial. She represented herself because she couldn’t afford to hire a lawyer.
She said her encounters with IRS agents prior to the trial were “intimidating,” and in court, the agency’s lawyers “tried to portray me as a crazy cat lady.”
But Van Dusen said that Judge Richard Morrison showed great patience: “He had to go through all these receipts from Costco and ask questions like, ‘What were these paper towels used for?'”
She also discovered that the court workers were sympathetic to her cause. A friend told her they were saying, “Why is the IRS wasting taxpayer dollars to prosecute a cat lady?”
There was more at stake in Van Dusen’s fight with the IRS than just her personal ability to take deductions for cat care.
Every year, animal-rescue volunteers across the nation take millions of dollars in tax deductions for unreimbursed expenses. The rules around these deductions needed to be clarified not just for their sake but for the treatment of volunteers’ unreimbursed expenses for a million and a half other IRS-recognized charities.
“If it came down to helping a cat with a medical problem or saving for retirement, I would spend on the cat’s care — as will a lot of rescue workers,” Van Dusen said.
Early this month, two years after the Tax Court had heard her case, she found out that she had emerged victorious. “I was stunned,” she said. “It feels great to have established this precedent.”
In his 42-page decision, Judge Morrison agreed with the majority of her arguments. He allowed Van Dusen to deduct most of some bills and half of others for care of the feral cats, ruling they were unreimbursed expenses incurred to help a charitable group in its mission. He did, however, reduce the total deduction somewhat — the amount isn’t clear yet — because she didn’t have valid letters from the Fix Our Ferals acknowledging her volunteer work for expenses of $250 or more.
The Van Dusen v. Commissioner decision makes it easier for volunteers of animal rescue groups to deduct unreimbursed expenses that further those groups’ missions — such as fostering stray animals.
The decision also clarifies rules for anybody deducting unreimbursed charitable expenses of $250 or more, especially if they involve use of a home. Although it affects donors to charities and religious groups, it does not change any laws related to deductions for expenses related to political organizations.
The IRS has 90 days to appeal to a federal appeals court.
“This is the first time the court has addressed these expenses,” said Jonathan Lovvorn, chief counsel of the Humane Society of the US. “Now we want to get the word out.”
If you are an animal rescuer who incurs unreimbursed expenses for your charitable work, you might want to visit Sparkle the Designer Cat’s blog and read some commentary on the decision and advice about how to make sure you get your full deductions and avoid an epic battle with the IRS.
[Source: Wall Street Journal]