Terrie on Nonprofits
March 2005
Contributed
Services Not Deductible
Q: The managers of one of our centers asked me
to clarify language on acknowledgment letters
for donated pest control. We know that we
can't specify the value of the service when
we thank the donors, but I now understand
that the donor is not allowed to take a deduction
for a charitable contribution of services. Is
this rule widely understood by development
professionals, or was I just the only one
not up to date?
A: We’ll soon find out if you were the only one. I doubt it! The
IRS states clearly “you cannot deduct the
value of your time or service.” The exterminator
could deduct the cost of his gases, powders
and sprays, but given his/her primary costs
are in time it probably isn’t worth the energy
for the minimal return. He could deduct
his time only if he counted it as income
and paid taxes on it, but then his deduction
would at best be a wash.
The rule about not deducting the value of your time or service
has been tested in court in a number of cases. For
example, an attorney sought a deduction for
donated legal services and lost in Grant
v. Commissioner, 84 T.C. No. 32 (1985). Separate
rulings also went against a radio station
and a newspaper that tried taking
charitable deductions for the donation of
media space. The fact that they could have
sold that space to another entity held no
weight. Entertainers who have been able
to show that they gave up paying gigs to
do benefit performances were lauded by the
government, but still not given deductions.
One of the most creative attempts at getting a deduction for the
donation of services was highlighted in the
December 2004 update form Charitable Giving
Tax Service, R & R Newkirk, publisher
(thanks to Brenda Williamson from the
Audubon Society of Florida for bringing it
to my attention). Someone tried to take
a deduction for the contribution of services,
claiming it was a loss from a bad debt. No
surprise, the IRS won the case of Levine
v. Commissioner, 54 TCM No. 413 (1987).
Disclaimer: Please
confirm all tax and legal opinions with
your own accountant or attorney
Terrie
Temkin, Ph.D. is an internationally recognized
governance and planning expert. She is
president of NonProfit Management Solutions,
Inc.,
a principal in CoreStrategies for Nonprofits,
Inc., and a longtime member of AFP. Contact
her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
|
