November 28, 2002 | Read Time: 2 minutes
The Internal Revenue Service has issued a revenue ruling that explains how donors and charities should properly handle gifts of used cars. Revenue rulings from the IRS are designed to help the public by stating the government’s official position on aspects of tax law.
In its position paper, the IRS delves into the controversial issue of how donors should calculate the fair market value of their vehicle contributions without exaggerating the value of their gifts.
The tax agency says that a donor may use an “established used-car pricing guide,” such as the Kelley Blue Book Used Car Guide, to determine the value of an automobile if the guide lists a sales price for a car that is the same make, model, and year — and sold in the same geographic area and in the same condition — as the donated vehicle.
In a hypothetical example, the IRS says that if a donor contributes a car in poor condition, and the guide does not provide a value for such a vehicle, the donor must establish the value “using some other method that is reasonable under the circumstances.” The IRS refers donors to its Publication 561, “Determining the Value of Donated Property,” which explains the law.
The revenue ruling also discusses how a for-profit company that is licensed to sell cars and serves as a charity’s “authorized agent” under state law may legally solicit cars for the charity; accept, process, and sell the donated cars; transfer the proceeds to the charity; and charge the nonprofit organization a fee for its work.
At issue has been whether donors whose cars are handled by for-profit agents of charities qualify for a tax deduction for their gift. The IRS says that they do, because under federal law the “transfer” of the car to such a company is treated as a transfer to the charity itself.
In its revenue ruling, the IRS also states that a car company that acts as a charity’s agent may provide gift receipts for the donations rather than the charity having to provide them. Donors cannot claim tax write-offs for donations of $250 or more unless they have written acknowledgments of their gifts from charities.
Revenue Ruling 2002-67 appears in Internal Revenue Bulletin 2002-47.
