IRS
Urges Caution When Making Car Donation
Dec. 16, 2003 (SmartPros)
— The Internal Revenue Service issued a consumer alert Monday to help
taxpayers avoid potential pitfalls when they donate their automobiles
to charities.
A recent federal study indicates that in many instances such vehicle
contributions may help the intended charities far less than
taxpayers think. In addition, a California study revealed that 80
percent of charities contracting with fundraisers to run their car
donation program received less than 60 cents for every dollar value
of vehicle donated. In one donation reviewed by the General
Accounting Office (GAO), a taxpayer donated a 1983 truck valued at
$2,400, but after the fundraiser sold the vehicle at auction and
deducted administrative and advertising costs, the charity received
$31.50.
The IRS advises that taxpayers contemplating such donations should
ask many questions and carefully consider just how much of the
proceeds from the car will go to their intended charity.
"We encourage people to proceed carefully when donating vehicles,"
said IRS Commissioner Mark W. Everson. "Supporting charitable
activities through tax deductible contributions is an important
element of tax law and serves the national interest. But people
should know that in some cases the donation is providing little
value."
Across the nation, an increasing number of charities have turned to
car-donation programs in recent years as an effective way to raise
money. And these programs, if well managed by the charity, can
offer significant benefits for the exempt organization and the
taxpayer.
In addition, IRS officials are concerned that, as the end of the tax
year approaches and taxpayers finalize their charitable donations,
many may not know enough about IRS recordkeeping and filing
requirements.
Of 129 million individual returns filed for tax year 2000, the GAO
estimates 733,000 returns had a tax deduction for a vehicle
donation. These donations were valued at about $2.5 billion,
reducing taxpayer liability by an estimated $654 million.
For a taxpayer, the appeal of a car donation is simple: Unload an
old car, help a worthy cause and take advantage of tax provisions
designed to support the generosity of Americans. Taxpayers who
itemize deductions on their tax return can deduct no more than the
fair market value of their contributions to qualified charities.
The proliferation of car donation programs, however, has taken place
without taxpayers always understanding what they must do to take
advantage of the deduction.
"A few simple steps can help avoid headaches for taxpayers," Everson
said.
IRS officials recommend that people who want to donate their vehicle
take the following steps:
- Check that the organization is qualified at www.irs.gov/bus_info/eo/eosearch.html.
- Speak directly to the charity.
- Examine state filings for more information.
- Itemize in order to benefit.
- Calculate the fair market value.
- Deduct only the car's fair market value.
- Document the charitable contribution deduction.
- Contact state charity and IRS officials when in doubt.
In 2000, the last year for which complete data is available, about
37.5 million taxpayers made deductible charitable contributions
totaling nearly $140.7 billion. Of these gifts, nearly $98.2 billion
were cash donations. |
