July 25, 2002 | Read Time: 2 minutes
The IRS’s Exempt Organizations Division has announced its priorities for enforcing laws affecting charities in fiscal 2003, which begins October 1.
Among the new items is a plan to issue guidelines on the charitable deductions that donors are allowed to take on the automobiles they donate to charity. One issue the IRS may clarify is whether donors are entitled to take a deduction when the donation is handled by a third party.
Many charities hire an outside company to advertise for donated vehicles, pick them up, and sell them, often with little involvement from the charity other than the payment of a fee.
While the IRS has not issued formal instruction to charities on the subject, it has told its agents that in such cases the charity may have too little connection to the process for the automobile to be considered a donation. To be deductible as a gift, used cars must actually be donated to the charity or to an agent of the charity. Charities that hire such companies may provide too little supervision to make the company an agent, according to the IRS.
The revenue agency also has said it is concerned that charities may be encouraging donors to take an excessive deduction by telling them they can write off the full “Blue Book” value of a car that is in poor or inoperable condition.
The IRS also will focus this year on charitable remainder trusts.
Through a charitable remainder trust, a donor gives cash, stock, real estate, or other assets to a charity, which then invests the gift. In exchange, the charity provides regular payments to the donor, a beneficiary, or both. When the donor and any beneficiaries die, all the assets in the trust go to the charity.
Among other items, the revenue service will provide guidance on how capital-gains income earned by such trusts should be handled.
