FOXNEWS.COM

Tuesday, January 13, 2004

WASHINGTON — The Treasury Department (search), responding to evidence that taxpayers who donate cars to charities tend to overstate their value, asked Congress to impose new restrictions on deductions for donated automobiles.

Treasury wants Congress to give taxpayers a choice between obtaining an independent appraisal of a car's value or estimating its fair market value using a department formula. Congress would have to give the department the authority to develop a formula.

Assistant Treasury Secretary Pamela Olson said the department wants deductions to reflect more accurately the value of the donated cars. The restrictions, if enacted, would reduce taxpayer deductions by roughly $1 billion over a decade. She said the department did not want to stop car donations.

Individuals and companies who donate patents and other intellectual property also would have to get independent appraisals, and the proposed rules would limit the amount that could be deducted.

The closer look at deductions for donated cars grew out of an investigation last year by General Accounting Office (search) auditors.

The report examined 54 specific vehicle donations and found that the charities received pennies on the dollar value that donors claimed as deductions on their tax returns.

Charities (search) often reap little of a car's estimated worth if the vehicles are sold at wholesale auctions. The proceeds are split between the charity and the company that organizes vehicle donations, which uses some proceeds for advertising, towing and auctions.

As a result of the study, the Internal Revenue Service urged taxpayers to ask charities how much they benefit from a donation. The IRS also reminded taxpayers to estimate a donated vehicle's fair market value, or the amount it would sell for on the market, considering its condition and mileage.

The Senate Finance Committee has been studying proposals to curtail deductions that far exceed the worth of donated property. Committee leaders plan to use money the government saves under the stricter rules to offset the cost of a new tax deduction for cash donations to charities.

"On patent donations, we know there's massive abuse," said committee Chairman Charles Grassley, R-Iowa. "I'm also pleased that the administration has responded to the Finance Committee review of car donations and suggested reforms."