April 17, 2003 | Read Time: 2 minutes
Charities receive less money from the donation of cars than the donors expect, congressional investigators told lawmakers this month.
When donors give their cars to charity, they assume that the charity will receive the fair market value of the vehicles. However, that’s often not the case, the General Accounting Office, Congress’s investigative arm, told the Senate Finance Committee at a hearing where it released a report on car donations.
Charities sometimes auction donated cars for wholesale prices, which are much less than fair market value, the GAO said. Many charities also pay fees to professional fund raisers who run the donation programs on their behalf; the fees further reduce the amount the nonprofit groups receive.
The few charities that handle car donations themselves get 100 percent of the proceeds from the sale of the car or its parts, less their costs. Charities that use for-profit fund raisers get less for the donations because fund raisers keep a portion of the returns to pay for their advertising, employees, and other costs.
Even though charities may receive little from the sale of a car, donors often deduct the maximum market value of the vehicle from their income taxes.
The GAO report follows years of scrutiny of such donations by the IRS. Late last year, the tax agency issued a revenue ruling that explains how charities and donors should properly value used cars (The Chronicle, November 28).
Sen. Charles Grassley, Republican of Iowa and chairman of the Senate Finance Committee, said it is “surprising” that charities get only pennies for every dollar of value in these vehicles. “With all of the ads encouraging vehicle donation, reasonable consumers assume charities always get the lion’s share from those transactions,” Mr. Grassley observed. He also expressed concern that donors are taking a larger income-tax deduction than they are entitled to, and said he will follow up with the IRS to make sure it isn’t “being taken for a ride” by people overstating the value of their donated cars.
The GAO says it intends to conduct a national survey of charities to determine how many solicit automobiles, and the importance of the donations to their operations. Charities it has spoken with so far have said that vehicle donations range from less than 1 percent to about 98 percent of their budgets. The GAO says its final report should be available this fall.
California is the only state that keeps track of charity returns on car donations managed by professional fund raisers. In 2000, most of the charities using those services received 40 to 59 percent of the proceeds, the GAO said.
In 2000, according to federal tax records, 733,000 people claimed a deduction for donating a car, and those donors together reduced their taxes by $654-million.
The report, “Taxpayer Considerations When Donating Vehicles to Charity,” can be obtained online at http://www.gao.gov. The report number is GAO-03-608T.
