The Internal Revenue Service issued a consumer alert today to
help taxpayers avoid potential pitfalls when they donate their
automobiles to charities.
The Internal Revenue Service issued a consumer alert today to help taxpayers avoid potential pitfalls when they donate their automobiles to charities. The IRS advises that taxpayers contemplating such donations should ask questions and carefully consider just how much of the proceeds from the car will go to their intended charity.
A recent federal study indicates that in many instances such vehicle contributions may help the intended charities far less than taxpayers think.
“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.”
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.
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.
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.
IRS officials recommend that people who itemize their deductions and want to donate their vehicle take the following steps:
Check that the organization is qualified – Taxpayers must make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax deductible. Taxpayers can use the IRS Web site to check that an organization is qualified by searching Publication 78 at www.irs.gov .
Deduct only the car’s fair market value – Some car donation program operators have mistakenly claimed that donors can take the full “Blue Book” value of their car for a deduction. The tax law, however, allows a deduction for only the fair market value of the car, which means estimating what the car would sell for on the open market. Determining factors to consider include the year, the model, and the mileage of the car, as well as the local market and the vehicle’s condition. The fair market value of the car may be substantially different from the “Blue Book” value. IRS Publication 526, “Charitable Deductions,” and IRS Publication 561, “Determining the Value of Donated Property,” provide detailed instructions. They can both be obtained on the IRS Web site or ordered by mail at 1-800-829-3676.
Document the charitable contribution deduction – For vehicle donations, taxpayers must document the car donation and its fair market value. Recordkeeping requirements vary depending on the amount of the contribution and the total amount of the charitable deduction. IRS Publication 526 details the types of receipts to obtain and the forms to file.
Contact charity and IRS officials when in doubt – Donors with questions about whether a contribution is deductible should call the IRS at 1-800-829-1040. Donors concerned that contributions are being solicited for fraudulent purposes should contact the appropriate state charity official, who is often located in the state attorney general’s office. A list of state charity official offices can be found online at www.nasconet.org , and a list of state attorneys general can be found at www.naag.org
Of 129 million individual returns filed for tax year 2000, about 37.5 million taxpayers made deductible charitable contributions totaling nearly $140.7 billion. Of these gifts, nearly $98.2 billion were cash donations. 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.
