Congress Seeks to Stop Inflated Gift Deductions

By Elizabeth Schwinn

Amid continuing concern by Congress and the U.S. Department of the Treasury that individuals and companies are taking overly generous deductions for their gifts of cars, art, and other noncash items, lawmakers are acting to limit such deductions. They are also asking the Internal Revenue Service to explain why it has not been able to police such write-offs more effectively.

Sens. Max Baucus, Democrat of Montana, and Charles Grassley, Republican of Iowa, have asked the IRS to outline what it is doing to prevent abuses of charitable deductions and to supply the Senate Finance Committee, which they head, with documents related to such efforts. “It would appear that a significant number of audits are falling through the cracks at the Internal Revenue Service when it comes to follow-up on charitable donations,” Mr. Baucus said.

Senator Baucus and Senator Grassley also proposed legislation to curb such abuses. Their measures have been added as an amendment to the Jumpstart Our Business Strength Act (S. 1637), popularly known as the Jobs Act. However, that bill stalled in the Senate last week over an unrelated dispute. The pair said they plan to develop additional proposals as needed.

The amendments would require charities to supply receipts to donors showing how much a donated vehicle sold for — and would limit a donor’s deduction to that amount. Taxpayers may now deduct the fair market value of their cars without an appraisal, as long as they say the car is worth less than $5,000.

The senators also want to place new limits on the amount that donors could write off for contributing patents or other intellectual property to charity.

Other lawmakers have also offered bills to restrict charitable deductions. Rep. William Thomas, chairman of the House Ways and Means Committee, has introduced a bill that would require taxpayers to obtain independent appraisals of all donated vehicles.

The Senate’s failure to vote on the Jobs Act had consequences for another charity-related bill, the Charity Aid, Recovery, and Empowerment (Care) Act of 2003, which is aimed at providing new incentives for charitable giving. Sens. Rick Santorum, Republican of Pennsylvania, and Joseph Lieberman, Democrat of Connecticut, had planned to offer the bill as an amendment to the Jobs Act but were unable to do so. The bill would allow people who do not itemize on their income-tax returns to write off some of their charitable gifts.