The report, commissioned this year after problems with vehicle
donation programs were revealed in congressional testimony, looked at
a sampling of 54 donated cars to four charities in four states.
The findings: In the vast majority of the cases, the charities
received amounts equal to less than 5 percent of the tax deductions
claimed by donors. That was partly because the sale price of the car
often amounted to a small fraction of the amount claimed by the donors
as the fair market value. In addition, administration costs reduced
the charities' net proceeds.
In the case of a 1990 Mercury station wagon examined in the report,
the taxpayer claimed a $2,915 deduction for the donation. But the car
sold at auction after the donation for just $30.
In that case, the charity lost $130 on the deal after paying the
costs of soliciting and selling the car.
In most other cases studied, charities did make money on the sales
of donated cars. But the amounts received frequently were negligible.
In 23 of the 54 sales examined, the charity received $20 or less.
Belinda Johns, a California deputy attorney general specializing in
charities, said one problem with in- kind donations is that it can be
difficult to account for the money. "From the IRS standpoint, the
deduction claimed for them is easy to inflate," she said.
The sales price of donated cars in the GAO study usually amounted
to less than 30 percent of the deduction claimed by the donor. In only
three of the cases did the sales price equal more than half the
donation claimed.
In all but one case, the deductions claimed were under $5,000 --
the Internal Revenue Service's limit after which donors must get a
professional appraisal of a donated item to claim a write-off.
Charities, or their agents, sometimes suggest to consumers how much
their car might be worth on the market. But the consumer is liable for
determining the proper tax deduction.
In a letter responding to the report, IRS Commissioner Mark Everson
said the agency already had taken steps to improve reporting of
donation programs. The IRS, through a recently launched audit program,
also is looking at whether this is an area of widespread cheating by
taxpayers, he said.
An increasing number of charities have turned to vehicle donation
programs in recent years in an effort to bolster their coffers, said
Trent Stamp, executive director of charity evaluator Charity
Navigator.
The programs often are run by private fund-raising companies. In
some cases, the charity gets only a fixed amount -- say $100 per car
-- no matter how much the fund-raising company earns from a vehicle's
sale, said Bennett Weiner, chief operating officer of the Better
Business Bureau's Wise Giving Alliance in Arlington, Va.
Sincere donors should be skeptical in light of the GAO report,
Weiner said. People who have a vehicle in running condition that
they're considering giving away should carefully check out the group
soliciting their car, and make sure they understand just how much
would go to the cause.
Additionally, Weiner suggested looking for charities that planned
to use donated cars in their operations rather than those that would
sell a car to pocket the proceeds.
