Many organizations have volunteers that give their own time, talent and money. The money can either be in the form of a direct charitable contribution to the organization or in the form of unreimbursed expenses. How can a charitable organization help their volunteers make certain those unreimbursed expenses are charitable deductions on the volunteer’s personal income tax return?
In order for unreimbursed expenses to be deductible as a charitable contribution by a volunteer, a four-part relationship test must be met and contemporaneous written acknowledgement from the organization must be received.
To satisfy the relationship test, the volunteer must have a close relationship with the organization, have organizational supervision, and accountability. The organization must also be able to request the services of the volunteer for which an expense has been incurred. Being actively involved with the organization, having interaction with other organization volunteers or staff typically is enough to satisfy the relationship test as long as the reason behind the unreimbursed expense is to further the organization’s exempt purpose.
Once the organization determines the relationship test has been met, they can then consider issuing the contemporaneous written acknowledgement. The written acknowledgement should describe the relationship test results and the nature of the services and as many other known details. For example, the reason for the expense, the location, the time, etc. As with other receipts the organization provides for receipt of contributions, the acknowledgement should contain a statement that “no goods or services” were supplied or the value of the goods or services that were received that should not be considered a charitable contribution. This written receipt must be provided to the volunteer prior to them filing their tax return.
It is recommended that a charitable organization adopt a policy to help them prepare the required contemporaneous written acknowledgement for unreimbursed expenses in excess of $250. This receipt will most likely be more comprehensive than their normal receipts for contributions and take a little more time preparing. However, it could encourage more volunteers as well as give the organization peace of mind that its receipts to volunteers for unreimbursed expenses are appropriate.