IR-2003-139, Dec. 15, 2003
WASHINGTON — The Internal Revenue Service issued a consumer alert
today to help taxpayers avoid potential pitfalls when they donate
their automobiles to charities.
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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.
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.
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
— 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/bus_info/eo/ eosearch.html. Publication 78 is an
annual, cumulative list of most organizations that are qualified to
receive deductible contributions. Publication 78 is also available
in many public libraries. In addition, taxpayers can call IRS Tax
Exempt/Government Entities Customer Service at 1-877-829-5500. Be
sure to have the organization’s correct name and its headquarters
location, if possible. Churches, synagogues, temples, mosques and
governments are not required to apply for this exemption in order to
be qualified. They frequently are not listed in Publication 78.
Donations to these institutions are tax deductible.
Speak Directly to the Charity
— Many donors also want to make sure their contribution is used for
the charitable purpose they intend. The IRS urges donors to ask
whether those soliciting the car donation are officials of the
charity itself or a private fundraiser acting on the charity's
behalf. If it is a private fundraiser, what will it do with the
vehicle? Will the car be fixed up and given to the poor and needy?
Or will it be resold? And if it is resold, what share of the
proceeds will go to the charity? A donor can ensure the donation
furthers the intended charitable purpose by obtaining acceptable
responses to these questions.
Examine State Filings for More Information
— Taxpayers can also review the organization’s state registration
and financial filings. These documents are commonly filed with a
state charity regulator suss ch as the State Attorney General’s
Office or the Secretary of State’s Office. Donors can use these
records to find out how long a charity has been in existence and to
compare the percentage of revenue the charity spends on its
charitable programs to the percentage it spends on administrative
costs.
Itemize in Order to Benefit
— Many taxpayers can’t take a deduction for car donations because
they don’t itemize deductions on their personal tax return. For
taxpayers, the decision to itemize is determined by whether their
total itemized deductions are greater than the standard deduction
(for 2003, the standard deduction will be $4,750 for single; $9,500
for married filing jointly). Just under one-third of the nearly 129
million individual taxpayers itemized in 2000, the last year for
which complete data is available.
Calculate the Fair Market Value
— The donor must take many factors into consideration to establish
the value of the car. Many used-car buying guides contain
step-by-step instructions so that readers can make adjustments to
the value of a car for accessories, mileage and other indicators of
its general condition. Both IRS Publication 526, Charitable
Deductions, and IRS Publication 561, Determining the Value of
Donated Property, provide detailed instructions.
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 IRS, however, will only allow a deduction for the
fair market value of the car. Fair market value takes into account
many factors, including the vehicle’s condition. The fair market
value of the taxpayer’s car may be substantially different from the
“Blue Book” value.
Document the Charitable Contribution Deduction
— For vehicle donations, taxpayers must document the car donation
and its fair market value. Recordkeeping requirements are
comprehensive and vary depending on the amount of the contribution
and the total amount of the charitable deduction. IRS Publication
526 details requirements for the types of receipts taxpayers must
obtain and the forms they must file.
Contact State 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 or for TTY/TDD help, call 1-800-829-4059. 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.
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.
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