May 27, 2004 | Read Time: 2 minutes
The Senate has passed legislation intended to prevent individuals and companies from taking overly generous deductions for their donations of cars, intellectual property, and other noncash items, and to encourage people to report those who make such inflated claims to the Internal Revenue Service.
The provisions were included in an amendment to the Jumpstart Our Business Strength Act (S. 1637) — popularly known as the Jobs Act — and were offered by Sen. Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee.
Some charitable organizations expressed concern about the charitable-deduction provisions, saying the limit on vehicle donations could dissuade donors from contributing their cars and other property because it allows individuals and companies to take a tax deduction only for the sale price of donated property — not for its fair market value.
“Cars are often worth more than we as a charity sell them for,” says Maj. Larry W. White, who helps oversee car donations for the Salvation Army’s southern territory. “We would rather see the government ask people to get an appraisal. They accept appraisals for everything else.”
Senator Grassley’s amendment would require charities to supply receipts to donors showing how much a donated vehicle sold for, and it would limit a donor’s deduction to that amount. Under current law, taxpayers may deduct the fair market value of their cars without an appraisal, so long as the donor says the car is worth less than $5,000.
In addition, Mr. Grassley incorporated a provision designed to encourage people to report tax cheats to the IRS by providing an independent review for whistleblowers seeking a cash reward. The proposal would create an office at the IRS that would be dedicated to working with whistleblowers who provide information about tax violations, including inflated charitable deductions. Currently, only about 1 in 11 reward claims is paid by the IRS.
“It’s important to empower whistleblowers to help catch tax cheats,” Mr. Grassley said in a statement. “One well-positioned whistleblower could expose millions of dollars of fraud. It might take IRS auditors years to catch that much cheating on their own.”
Senator Grassley has said he plans to hold hearings sometime this summer on possible tax abuses in charitable giving.
Other lawmakers also have introduced legislation to restrict charitable deductions. Rep. Bill 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. And the House bill would place new limits on the amount that donors could write off for contributing patents or other intellectual property to charity.
