Treasury Seeks to Lower Donated-Car Deductions

By Elizabeth Schwinn

Saying that some donors who give automobiles to charity are taking deductions from their income taxes for far more than the true value of their gifts, the U.S. Department of the Treasury has asked Congress to impose new restrictions on such gifts. The proposal would reduce taxpayer deductions by about $1-billion over a decade, the agency predicts.

Under the Treasury proposal, taxpayers would either have to get an independent appraisal of a car’s value or estimate its fair market value using a government formula, which probably would yield a lower value than commercial “blue books” used to set automobile resale prices. The agency must receive authority from Congress to establish such a formula.

Taxpayers now may claim the fair market value for their cars without an appraisal as long as they claim a value of less than $5,000 for a vehicle.

The new policy would require taxpayers to obtain appraisals for all vehicles donated to charity, even those worth less than $5,000.

The Treasury Department says some donors lie on their income-tax returns, claiming larger deductions for their vehicles than the cars are actually worth.

But even when a donor is honest, a charity often receives far less in cash than the deduction the donor claims. This happens because charities often hire a middleman, who receives a cut of the proceeds, to handle the collection and sale of donated vehicles.

In addition, donated cars are often sold to wholesalers for much less than their retail price. The result, tax experts say, is that the Treasury annually loses hundreds of millions in charitable deductions that do not correspond to a gain for charities.

A December report by the General Accounting Office, Congress’s investigative arm, found that charities routinely receive from car donations less than 5 percent of what donors say the vehicles are worth when they claim their deductions. For example, the GAO found that a pickup truck for which a donor claimed a $2,400 deduction only brought the charity $31 (The Chronicle, January 8).

The Senate Finance Committee, which will take up Treasury’s proposal, already is considering ways to discourage abuses in such donations. One possibility might be to limit deductions to the value a charity actually receives from such a gift.

Charities and their representatives worry that new rules might be confusing or difficult to follow and could discourage donations.

Relatively few charities receive vehicle donations, according to the GAO.

About 4,300 charities — some 2.7 percent of all nonprofit organizations nationwide with annual revenue of at least $100,000 — solicit vehicles as gifts, the GAOreport estimates.

Of those that do, most do not get a significant portion of their income from them, according to the GAO report. Of the 30 charities the GAO surveyed, half said that proceeds from vehicle donations amounted to less than 2 percent of their revenue. Two of the groups surveyed, however, generated at least 90 percent of their revenue from car donations.