THE TAX ATTIC with Jerry Coon

Tax court case examined

Jerry Coon

The Detroit Tigers have made the playoffs. They were playing on the West Coast against Oakland last week when they clinched the American League Central Division title. West Coast night games typically start at 10 p.m. here in Michigan, but it was a Friday night, so I was determined to stay up and watch them play—in case they won and did clinch a playoff spot. I wanted to see it happen.

My wife, Deb, thought it was another confirmation that I have never grown up. That’s not totally true. It’s just that I love baseball and, in particular, the Detroit Tigers. My dad was a Tigers baseball fan, so I must have inherited that from him. I have said this before, but I can remember walking into Tigers Stadium for the first time like it was the day before yesterday and walking into Tigers Stadium for the last time like it was yesterday. There is something magical to me about major league baseball and the Tigers, even though they haven’t had great or even good teams over the years.

Previous to this year, in my lifetime, they had only made the playoffs five times and only won the World Series twice, in 1968 and 1984. In their entire existence, which started when the American League was formed in 1901, they had only made the playoffs 12 times and won only four World Series. Compared to the New York Yankees’ 27 World Series and 49 playoff appearances, the Tigers are pikers, but they are still my team and I’m happy to root for them. Given all of their failures, when they do win, it’s all the sweeter.

It’s very special to see them in the post-season. So I stayed up last Friday night, watched the game through the last pitch, and watched the post-game celebration as well. They did win and did clinch that 13th playoff spot. Now, let’s see if they can get World Series championship number five. I realize that would be a miracle, but we all know that miracles do occur. I used to have a coach who said, “Someone has to win and it might as well be us.” I say, “Someone has to win and it might as well be the Detroit Tigers.” Go Tigers!

From time to time, I like to go over some of the recent court cases that have been handed down that can potentially affect taxpayers. These court cases give us insight into what items the Internal Revenue Service is auditing and how it is treating those items.

Each of these court cases started out as an audit. The IRS disagreed with the taxpayer’s treatment of deductions or income. The taxpayer then disagreed with the IRS’ findings. The parties couldn’t find common ground and agreed to disagree. Agreeing to disagree then results in a court case. Results of audits are not public knowledge. Results of court cases, however, are public knowledge and are published for all to see and, by seeing, learn.

This particular case involves a taxpayer who claimed a charitable contribution for un-reimbursed expenses in the temporary care of feral cats. She took care of 70 to 80 cats for charitable, nonprofit organization, Fix Our Ferals (FOF), and, as such, had expenses in the amount of $12,000. The expenses were for food, pet supplies, cleaning supplies, water, bedding, vet bills, and extra electricity to operate a special ventilation system she had installed. The IRS disallowed the entire deduction. Of course, the taxpayer disagreed with the finding and sued the IRS in tax court.

The tax court did allow 90% of the substantiated vet bills, pet supplies, bedding and food expenses. The logic here was the taxpayer did have seven cats of her own and she did not separate the personal cat bills from the FOF cat bills. That actually does sound reasonable. For items such as cleaning supplies and extra electricity, 50% of the substantiated expense was allowed. Since the taxpayer’s personal usage factored into the expenses here, 50% sounds reasonable as well. The taxpayer was able to supply receipts for these expenditures.

As long as each expense was less than $250, it was allowed based on the above percentages. For those amounts in excess of $250, contemporaneous written substantiation from the charity must be obtained before the taxpayer’s return is filed. That substantiation must be written, must indicate that no goods or services were provided to the taxpayer in exchange for the goods or services, or makes an estimate of the value of goods or services provided. The taxpayer had no such letter of substantiation, so all of the expenses in excess of the $250 were disallowed.

What we can learn from this court case involves taxpayers who are spending time and money on behalf of other pet organizations caring for animals in distress. Two that come to mind are the Greyhounds Angels Adoption and the Michigan Animal Rescue League. The expenses taxpayers have in caring for animals on behalf of these organizations could be deductible with two caveats. First, the taxpayer must have receipts substantiating the expense. Second, prorate the expenses for personal pets and personal living expenses. Third, for amounts in excess of $250, the taxpayer must have a letter of substantiation from the organization. That letter must be in the taxpayer’s possession before the return is filed.

Before I sign off, I want to remind everyone that this weekend is the first weekend of Harvest Fest here in Rockford. Multiple events are happening around town, including the famous annual Rotary Chicken BBQ sale at the Rotary Pavilion in downtown Rockford. Dinners are available Friday, Saturday and Sunday for $9. On Friday night, for those of you heading to Muskegon for the Rockford-Muskegon football showdown, remember a drive-up service is provided. The same applies on Saturday for those of you, including me, who are heading to East Lansing for the MSU-CMU showdown. Go Chips! In fact, all weekend you can grab a chicken dinner without leaving your car. All profits of the sale go to worthy Rotary charities, such as North Kent Community Services. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service in Rockford. Contact Jerry

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