Q&A #162 – Can nonprofit volunteers deduct the value of their services as a charitable contribution?
Question: My nonprofit organization relies heavily on volunteers (Board members and others) to help out at our events and other programs. Several volunteers have asked us to provide acknowledgment letters documenting the value of their volunteer service time so they can deduct this from their taxes. Are volunteer services tax deductible and should we provide acknowledgment letters to volunteers showing the value of their time?
Answer: The value of a volunteer’s time for in-kind services donated to a nonprofit organization is not tax deductible, and an organization should never state the dollar value of a volunteer’s services in an acknowledgment letter. However, it may be appropriate to provide volunteers with an acknowledgment letter that generally describes the services they provided so that volunteers can deduct certain eligible unreimbursed expenses.
Many volunteers and nonprofit organizations incorrectly assume that volunteers can use the charitable deduction to deduct the value of a volunteer’s time. Somewhat understandably, this misconception tends to be especially prevalent in cases where volunteers contribute “pro bono” services for which they otherwise charge fees as part of their business (legal services, graphic design, consulting, etc.), or where volunteer services required a volunteer to take off time from work.
However, the Treasury Regulations and IRS guidance on the charitable deduction clearly state that the value of a volunteer’s time is not tax deductible. See Treas. Reg. § 1.170A-1(g) (“No deduction is allowable under section 170 for a contribution of services.”). See also IRS Publication 526:
“You can't deduct the value of your time or services, including:
Blood donations to the American Red Cross or to blood banks, and
The value of income lost while you work as an unpaid volunteer for a qualified organization.”
Presumably, the policy rationale behind this rule is that allowing volunteers to assign a dollar value to their own volunteer time for charitable deduction purposes would open the door to fraudulent and/or inflated deductions that would be difficult to enforce.
Accordingly, while a nonprofit should never hesitate to thank their volunteers for the important services they provide, an organization should never state the dollar value of a volunteer’s services in a donor acknowledgment letter. Doing so would inappropriately imply that this amount is eligible for the charitable deduction – it is not.
Planning Tip – Even though the dollar value of a volunteer’s time is not tax deductible and should never be stated in an acknowledgment letter, it is nonetheless important for a nonprofit organization to keep good records of donated services for its own internal purposes. As explained in Q&A #26, tracking donated services is crucial for purposes of volunteer and donor management, financial recordkeeping, and capacity and resource management.
However, in some cases it may be appropriate to provide a general description of volunteer services provided in the acknowledgment letter. This is because volunteers are permitted in narrow circumstances to deduct certain unreimbursed out-of-pocket expenses incurred in connection with their volunteer services (for example, travel costs to volunteer at an organization’s event). In these cases, as described in IRS Publication 526 and IRS Publication 1771, the acknowledgment should include a “description of the services provided by the donor” (for example, the event they volunteered for and the date(s) of their services) along with other information generally required in an acknowledgment letter, but not the value of their time or the dollar amount of the unreimbursed expense incurred by the volunteer.
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