Gift Planning Tips

The Tax Code’s “Don’t Have Fun” Rule

Gifts of services to charitable organizations are nondeductible, although unreimbursed expenditures incident to the rendering of services are deductible [Reg. §1.170A-1(g)].  Most expenses are deductible, but IRC §170(j) prohibits deductions for unreimbursed travel expenses if there is a “significant element of personal pleasure, recreation or vacation” included in travel on behalf of charity. 

Richard Field ran afoul of the “don’t have fun rule” when he accompanied the Houston Symphony Chorus as a volunteer on a tour of England and Wales.  His expenses for the eight-day trip totaled $1,545.93, which he took as a contribution deduction on his 2000 income tax return.  When the IRS disallowed the deduction he took his case to the U.S. Tax Court, which examined the group’s itinerary and determined that it included 25 hours of rehearsals and allotted 37 hours for sightseeing.  Field protested that, at his age, he was either “reading, sleeping or resting from jet lag during those times and not sightseeing.”   The court upheld the IRS, rejecting Field’s testimony as “self-serving” (Field v. Comm’r., T.C. Summ. Op 2005-184).

Treasury regulations require that charities provide acknowledgements to volunteers who present evidence of out-of-pocket expenditures totaling $250 or more. The acknowledgement should describe the services provided by the volunteer and must make a good faith estimate of the value of any goods or services received in return [Reg. §1.170A-13(f)(10)]. Charity does not have to verify the value of the volunteer’s deduction, but the donor/volunteer must be prepared to show records or receipts to substantiate expenses claimed.   No acknowledgment is required for expenses less than $250, but volunteers should maintain records – and be presumably be able to satisfy the IRS on the issue of “significant element of personal pleasure, recreation or vacation.”  For further cases and rulings, see the discussion beginning on page 2-10 of the Charitable Giving Tax Service.

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