July 15, 1999 | Read Time: 2 minutes
The I.R.S. has warned its district offices to watch out for serious problems involving donations of used cars to charities.
In a memorandum to agents, Marc Owens, director of the tax agency’s Exempt Organizations Division, said that his office is particularly concerned about some claims in advertising pitched to prospective donors.
Some ads wrongly promise a charitable deduction for cars when businesses working for charities — not the charities themselves — are really in the driver’s seat, he said.
“In return for a fee, perhaps even a flat monthly or annual fee, a for-profit company will conduct the entire campaign with little or no involvement by the charity, starting with the solicitation of used auto donations, followed by the vehicle pickup and final disposition,” wrote Mr. Owens, who said such an arrangement amounts to a royalty deal.
“To be deductible as a gift ‘to’ charity, used cars must, in actuality, be given ‘to’ the charity or, at the least, an agent of the charity,” he said, adding that a royalty arrangement does not provide enough charity supervision to make a company an agent. In such cases, “the veracity of a statement that contributions are deductible may be challenged and, indeed, the donor would not be entitled to a charitable deduction in any amount,” said Mr. Owens.
The I.R.S. is also concerned about what Mr. Owens called the “hyperbole” of some advertising that promises charitable deductions for full “Blue Book” value when used cars are in poor or inoperable condition.
Mr. Owens said local agents should consider wielding a relatively new weapon — federal law designed to fight the abuse of tax shelters — against charities that provide erroneous information to donors about the deductibility of gifts that allows contributors to take bigger write-offs than they should. Some contracts between charities and for-profit companies could be so favorable to the businesses that the charities could be jeopardizing their tax-exempt status, he said.
Mr. Owens also suggested that local I.R.S. agents forward to auditors the names of individual donors of used cars in problem cases.
