Contribution Question - Tricky Situation

[TXEA]

Let me play devil's advocate. If he had communicated only with family, then his bill would've been $7,000. Because he communicated with family and donors, his bill was still $7,000. It seems he had no extra costs due to his communications with donors. (Plus, he could've waited until he was home.) I volunteer for Appalachia Service Project and don't get cell service in the hollers of Appalachia. I did use my phone to take pictures. When we got to about Maryland and I had service, I did text pictures to church to run in Sunday's bulletin. But, I do not try to deduct my cell bill while on ASP in VA.

Lion hit the nail on the head as usual. Finally (and I am asking), is there a ordinary and necessary standard for this type of activity? When would it have ever been ordinary and necessary to spend $7000 to send pictures back home?


I guess I don't have any part-time missionary clients.....So, this bill is $7000......What if it was $20,000....Is it still deductible by those who argue that it should be deductible? And, if so, how many of you would feel really good about putting that on the return?


Another issue.....Some advocated donating the 7000 and then the church reimbursing him. Ok, how are you going to allocate personal use? The church can't pay the whole bill. So, how much do they owe him. He was sending pictures home.

Bottom line, this was just a screw up on the volunteer's part or the phone carrier. It does not automatically make it a tax deductible event because he was volunteering on a mission trip.

And Finally, the law.

Expenses incidental to the rendering of volunteer services to a charitable
organization may constitute a deductible contribution. Treas. Reg. Section 1.170A-1(g).

For all rules related to expenses (particularly travel costs) there exists a requirement to allocate between personal time and volunteer time. So, does the taxpayer have a log that distinguishes between the personal data charges (playing games or whatever, text messages, checking the news, etc.) and the volunteer data used....Same for voice calls (maybe the cell phone bill would help with calls).

If the gift is earmarked for a noncharitable purpose, or even a charitable purpose that is outside of the donee organization's charitable mission, the gift is not deductible. Treas. Reg. § 1.170A-1(e) - Is there any chance this $7000 charitable contribution might be earmarked to pay back to the individual who made the contribution? If so, may not be deductible.

Another important question relates to whether the $7,000 furthered the organization's charitable purpose? I would argue no. It would have been better served giving it to the local village for example.

This is not a slam dunk just because this guy was volunteering on a mission trip.

[Nashville]

Agree with TXEA

This expense was incurred similarly to leaving the bathwater running and leaving the house for a month. The extreme water bill is a misfortune, but is nobody's "ordinary and necessary" expense.

Having said that, there are some major corporations who have, out of sheer stupidity, folly, and inefficiency, made decisions just as absent-minded as leaving the water on, yet they deduct the millions of dollars which are attributable to these mistakes. And no one ever questions the deductions. But I don't think our well-intentioned missionary friend could get away with it.

[JohnH]

Great discussion thus far, and thanks to everyone who is participating. (This post isn't intended to end the discussion - only to express appreciation for all the points of view). So if anyone else has anything to add please do so.

I'm forming a pretty strong opinion on how to handle this. So far I disagree with the assertion that the data plan expense is exclusively personal and is entirely non-deductible. The basic phone charges are not deductible, of course. But the international data plan expense is incurred solely by virtue of the fact that the mission trip is taking place. It is just as much a mission-related expense as it would be for a business person traveling overseas, who would normally be expected to communicate with the home office, and who would have a data plan furnished by the employer. If the trip qualifies as 100% deductible (which it does), then any ordinary and necessary expenses related to the trip also qualify. On the other hand, if there were a substantial element of sightseeing, ALL the expenses of the trip would need to be allocated. This allocation would include everything from travel, lodging, and food all the way up to and including the data plan costs. This is a well-established rule with respect to mission trips. I believe it indirecly provides guidance in this situation.

Incidentally, whether the money could be better used locally is, IMO, irrelevant. One could just as easily make that argument if the participant stays in a $60 hotel when there is a $10 dive in the same town. I also don't buy the negligence angle, because that argument could be made if someone carelessly falls down, is injured, and has to be medi-vaced back to the US. The diffference between the cost of Med-evac and an economy airfare could be better employed locally. The possibilities of this line of reasoning are endless.

At this point, I remain hung up on the size of the expenditure, though. I see no problem with deducting a cost in the $400 range for a 2-3 week trip. But $7,000 is just hard to justify, even if the carrier is toitally at fault but won't budge. So hopefully the carrier will reduce the bill, but they hold almost all the cards in this situation. Then I suppose the problem will be whether they reduce it to the $400 range. The next choke point would be if they reduce it to $3,500, or $2,000, or whatever.

In the meantime, I'm reaching out to a couople of mission organiztions to inquire if anyone has dealt with this situation in the past. I suspect this has happened before and someone somewhere may have obtained legal opinions or has dealth with something of a similar nature. In any event, I'll post updates.

[ATSMAN]

>>> At this point, I remain hung up on the size of the expenditure, though. I see no problem with deducting a cost in the $400 range for a 2-3 week trip. But $7,000 is just hard to justify, even if the carrier is toitally at fault but won't budge.

That is the key my fiend. You will attract a second glance at $7000 expense than $400 for phone charges.

I have clients who regularly run up $800 to $1200 cell phone charges with their data plan.

[JohnH]

Agreed. Since the overcharge is so large, the fact is that a reasonable reduction of the data plan dwarfs any tax considerations related to the entire trip.

[TXEA]

John - I agree my editorial comment about the better use of the funds is immaterial. Just unnecessary commentary. I just don't think a mistake results in a $7000 deductible phone bill regardless of the nature of the missionary work. I think that is the conclusion of the board. The challenge rests with you and your client is deciding on how much is deductible. I think I would try and find out what the charges would have been with the correct phone plan and proceed accordingly.

However, I still think, with regards to travel for missionary work there exists a requirement to allocate personal expenses from charitable work expenses....A data plan is certainly subject to personal use......FWIW.

[JohnH]

I probably should have worded my reply better, so don't think I took offense. The question aries often and in many contexts - is this a good use of ministry funds? Some people even objhect to short-term ministry trips entirely on the basis of this issue. However, laying that question aside, there is still the overall quesiton of deductibility of expenses which are personal in nature but incurred in the context of a legitimate tax-deductible trip.

The general rule is that mission travel is subject to the same basic rules as business travel when it comes to deductible trip-related expenses vs personal. For example, it is necessary to track any personal days used for sightseeing, cultural activities, or other non-ministry work. Under certain circumstances, it becomes necessary to allocate ALL expenses based on a formula which takes into account the ratio of non-minstry days to ministry days. The test revolves around whether there is any "significant element of personal pleasure, recreation, or vacation in such travel." But provided one meets the tests, then 100% of the trip is tax deductible even though there can be personal pleasure, recreation, or vacation days in the itinerary.

So the rules clearly allow for what might otherwise be personal expenses (sighseeing, for example), to be a part of the deductible expense. Since those are carved out under certain circumstances but not under others, it stands to reason that a personal expense does not automatically become non-deductible just because it has perrsonal elements. Following that logic, I don't think the mere magnitude of the expense matters either. It might matter if it were intentionally extravagant, but in a situation like this there was no intent to overspend.

The conversation has focused on whether the data plan is even deductible in the first place, which is actually a new area for me to think about. I still lean toward thinking that it fallls into the deductible category in spite of the many good arguments to the contrary.

But having said all that, and even though I know there was no intention to incur such an unusuallly large expense, I still struggle with the idea of a $7,000 deduction for this single item on a $3,800 trip. Not looking forward to making a final decision on this, and still anticipating that the cell phone company will do the right thing & get everybody off the hook.

[ATSMAN]

>>> The conversation has focused on whether the data plan is even deductible in the first place, which is actually a new area for me to think about. I still lean toward thinking that it fallls into the deductible category in spite of the many good arguments to the contrary.

Who does not have data plan these days with their smart phones? I don't ask for the model or plan my client is on. I just ask if they use a cellphone for business, what percentage they use for business and what they pay for it per year. Give me a copy of the Dec bill that has the summary of charges for the entire year!

[JohnH]

Well, the big problem has been obviated - the cell phone provider removed the $7K overcharge.

Thanks for all the discussion surrounding this.
I appreciate the various perspectives.
It is clear that the rules are a little fuzzy in this area.

We are still going with the $400 or so of International Data Plan charges which remain.
There's little question in my mind that they fall into the category of deductible charitable contributions.
But if there's ever an audit, I'll report back on the results.

[Kram BergGold]

Reasonable

The Church did not get $7,000 of value from his phone use. His personal error or the phone companies casued the high bill. I think you take a resonable amount backed by a letter from the charity for his phone use. I just read an article in the Boston Globe from someone asking for help to get a bill lilke this reduced. I don't think the charge was this high. The phone company did reduce the bill.

[taxea]

does he have a charitable deduction at all if out of country?

[JohnH]

You're kidding, right?
OF COURSE he has a charitable contribution.

My response is based on my knowledge and experience.
If you disagree, you should do the research so you will remember it longer.