Donors Continue to Inflate Deductions for Vehicles, Study Finds

The Treasury Department worries that too many taxpayers are overvaluing the worth of cars or other vehicles they donate to charity.

An audit released last month by the Treasury Inspector General for Tax Administration concluded that a law passed in 2004 that sought to stop donors from inflating the value of such gifts on their tax returns has not done enough to prevent losses for the U.S. government.

“Taxpayers who may not be entitled to deductions for charitable contributions of motor vehicles are reducing their tax liabilities, which could result in the loss of revenue to the federal government and inequitable treatment of taxpayers,” the audit found.

Under the law, which took effect January 1, 2005, donors are supposed to deduct the amount the charity received for selling the car, not the fair market value, as donors were allowed to do in the past.

The audit found that 104,846 taxpayers took deductions for automobile gifts in the 2005 tax year without providing any proof of what the cars had sold for. Those deductions lost the government about $209-million.

The audit report blames the Internal Revenue Service for the problem, saying the agency has not done enough to make taxpayers and tax preparers aware of the change in the law.