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.