Report: Car donation helps giver the most

Philanthropy group president says most of the charitable gifts are "a rip-off of the tax system."

By Greg Wright
Gannett News Service

December 13, 2003

Washington — You may not help your favorite charity by giving them your old Chevy, according to a government watchdog group report released Friday.

Most charities earn a pittance by selling donated vehicles, the Government Accounting Office report said. And the sales hurt taxpayers because people who donate cars get tax breaks valued far higher than the car's actual sales price, the report said.

"It's a rip-off of the tax system," said Daniel Borochoff, president of the American Institute of Philanthropy in Chicago.

Americans donated about 733,000 cars in 2000, claiming $654 million worth of charitable tax deductions as a result, the Internal Revenue Service said.

People make most car donations during the holiday season to help the poor but also to get a big tax break before year's end. The process is relatively easy: Owners sign the car title over to the charity. Many charities also tow away vehicles.

Most charities said they earned 5 percent on average of what donors told the IRS the vehicles were worth, the GAO report said.

Charities do not make much money because cars often are auctioned at wholesale prices far below the Kelley Blue Book value, the report said. Sales and fund-raising fees also take a big chunk from charity car sale profits.

For instance, one organization said it earned just $510 by selling a donated 1994 Dodge Caravan, the GAO said. But the donor told the IRS the popular minivan was worth $4,535.

The report alarmed Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Sen. Max Baucus of Montana, top Democrat on the committee. They will seek tax code changes next year to address the problem.

One possible fix: Donors must report what the charity sold the car for on their tax returns. Donors now can report whatever they think a car is worth as long as it is below $5,000, Grassley said. Only donated property valued at $5,000 or more must be professionally appraised.

"I don't want to discourage donations, but it's clear that changes are needed, including increased oversight," Baucus said.

Fewer than 3 percent of the 157,500 U.S. charities with yearly revenue of more than $100,000 have car donation programs, the report said. But Grassley said inflation of donated property value is a widespread problem because it includes artwork, land and other goods.

The IRS will examine whether it must do more audits of taxpayers who donate their cars, the report said. Lawmakers said the agency probably does not have enough manpower to go after wrongdoers. The IRS did not audit any of the leads it received on possible overvalued tax deductions, including vehicle donations, in the past two years, the report said.

For car donors who really want their used car to help a charity, Borochoff at the American Institute of Philanthropy offered this suggestion: Sell the car yourself and give the charity the cash. Donors also get a tax break by giving charities money.