|To help reduce overvalued auto
donations (and bring more tax dollars to federal coffers), the
IRS has issued a
for auto donations. In addition, legislation signed into law
by President Bush on Oct. 22 makes substantial changes to
used-car charitable deductions next year.
Beginning Jan. 1, 2005, when a
taxpayer donates a vehicle for which the claimed value is $500
or more, the precise deduction he can claim will depend on how
the charity plans to use the vehicle. If the auto is sold by the
nonprofit, then the taxpayer will be able to deduct only the
amount of gross proceeds the organization got from the sale. And
the donor will have to depend on the charity to let him know the
donation amount by the individual tax-filing deadline.
If, however, the group plans to
use the car for what the law deems as "significant" tax-approved
charitable work, the donor would be able to claim the fair
market value of the donated vehicle. The new law also provides
penalties for fraudulent acknowledgments provided to taxpayers.
Sen. Charles Grassley (R-Iowa),
primary sponsor of the measure, calls it "common-sense reforms
[that] will go a long way toward ending the abuses in car
donations" documented by government accountants.
Charities acknowledge that there
are problems with the current system, but many are skeptical
about changes that put the burden of policing tax breaks on the
recipient groups. The organizations also worry that the new
rules will dampen these types of contributions.
In a letter sent to the Treasury
Secretary during consideration of the changes, representatives
of two dozen charitable groups argued that, "Under such a
proposal, a taxpayer's actual deduction amount would be
uncertain at the time of a contribution, and potential donors
would not be able to compare the relative benefits obtained by
donating their vehicles, trading them in to a car dealer, or
selling the vehicles themselves. ... We believe this approach
would greatly discourage and reduce future vehicle donations to
charities and increase the cost of administering such programs,
and we would respectfully ask that the Treasury join us in
opposing any such proposal."
Details on the implementation and
enforcement of the new car donation law will be developed by the
U.S. Treasury in the coming months, and lawmakers and charities
will be watching closely.