WASHINGTON –The Internal Revenue Service and state charity officials
issued a consumer alert today to help taxpayers avoid potential pitfalls
when they donate their automobiles to charities.
Across the nation, an increasing number of charities have turned to car-donation
programs in recent years as an effective way to raise money. Many of these
charities run sound programs. But IRS and state officials are concerned
that, as the end of the tax year approaches and taxpayers finalize their
charitable donations, many may not know enough about the state and federal
recordkeeping and filing requirements.
“When done correctly, donating a used car to a charity can help
both the charity and the taxpayer,” said IRS Commissioner Charles
Rossotti. “We want people to take a few simple steps to avoid possible
problems and to make sure they get the proper tax deduction for their
donation. Don’t get taken for a ride.’’
State officials have additional concerns about car donation programs,
stemming from their mandate to safeguard charitable assets and to prevent
deceptive donation practices.
“We urge the public to take the proper steps to find out how their
contributions will be used,’’ said Karin Kunstler Goldman, president
of the National Association of State Charity Officials (NASCO) and an
Assistant Attorney General in New York State. “Any reputable charity
should be happy to provide potential donors with financial reports and
other information about its activities.”
NASCO members consist of officials from most of the 50 states and District
of Columbia who have regulatory authority over charitable organizations.
During the past year, NASCO and IRS officials responsible for overseeing
tax-exempt organizations have begun to work together in a partnership
to address issues of common concern.
For a taxpayer, the appeal of a car donation is simple: Unload an old
car, help a worthy cause and take advantage of tax provisions designed
to support the generosity of Americans. Taxpayers who itemize deductions
on their tax return can deduct, within limits, the fair market value of
their contributions to qualified charities.
The proliferation of car donation programs, however, has taken place
without taxpayers always understanding what they must do to take advantage
of the deduction. This confusion has been heightened by claims of some
of the private fundraisers who operate car donation programs on behalf
of qualified charities.
IRS and NASCO officials recommend that people who want to donate their
vehicle take the following steps:
- CHECK
THAT THE ORGANIZATION IS QUALIFIED –Taxpayers must make certain
that they contribute their car to an eligible organization; otherwise,
their donation will not be tax deductible. Taxpayers can use the IRS
Web site to check that an organization is qualified by searching Publication
78 at www.irs.gov/bus_info/eo/ eosearch.html. Publication 78 is an annual,
cumulative list of most organizations that are qualified to receive
deductible contributions. Publication 78 is also available in many public
libraries. In addition, taxpayers can call IRS Tax Exempt/Government
Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s
correct name and its headquarters location, if possible. Churches, synagogues,
temples, mosques and governments are not required to apply for this
exemption in order to be qualified. They frequently are not listed in
Publication 78. Donations to these institutions are tax deductible.
- EXAMINE
STATE FILINGS FOR MORE INFORMATION - Taxpayers can also review the organization’s
state registration and financial filings. These documents are commonly
filed with a state charity regulator such as the State Attorney General’s
Office or the Secretary of State’s Office. Donors can use these
records to find out how long a charity has been in existence and to
compare the percentage of revenue the charity spends on its charitable
programs to the percentage it spends on administrative costs.
- ASK QUESTIONS
ABOUT HOW THE DONATED VEHICLE WILL BE USED – Many donors also want
to make sure their contribution is used for the charitable purpose they
intend. NASCO officials urge donors to ask whether those soliciting
the car donation are officials of the charity itself or a private fundraiser
acting on the charity's behalf. If it is a private fundraiser, what
will it do with the vehicle? Will the car be fixed up and given to the
poor and needy? Or will it be resold? And if it is resold, what share
of the proceeds go to the charity? A donor can ensure the donation furthers
the intended charitable purpose by obtaining acceptable responses to
these questions.
- ITEMIZE
IN ORDER TO BENEFIT – Many taxpayers can’t take a deduction
for car donations because they don’t itemize deductions on their
personal tax return. For taxpayers, the decision to itemize is determined
by whether their total itemized deductions are greater than the standard
deduction (for 2001, the standard deduction will be $4,550 for single;
$7,600 for married filing jointly). Less than one-third of the nearly
128 million individual taxpayers itemized in 1999, the last year for
which complete data is available.
- DEDUCT
ONLY THE CAR’S FAIR MARKET VALUE – Some car donation program
operators have mistakenly claimed that donors can take the full “Blue
Book’’ value of their car for a deduction. The IRS, however,
will only allow a deduction for the fair market value of the car. Fair
market value takes into account many factors, including the vehicle’s
condition. The fair market value of the taxpayer’s car may be substantially
different from the “Blue Book” value.
- CALCULATE
THE FAIR MARKET VALUE – The donor must take many factors into consideration
to establish the value of the car. Many used-car buying guides contain
stepby- step instructions so that readers can make adjustments to the
value of a car for accessories, mileage and other indicators of its
general condition. Both IRS Publication 526, “Charitable Deductions,”
and IRS Publication 561, “Determining the Value of Donated Property,”
provide detailed instructions. Both publications can be found at www.irs.gov.
- DOCUMENT
THE CHARITABLE CONTRIBUTION DEDUCTION – For vehicle donations,
taxpayers must document the car donation and its fair market value.
Recordkeeping requirements are comprehensive, somewhat complicated and
vary depending on the amount of the contribution and the total amount
of the charitable deduction. IRS Publication 526 details requirements
for the types of receipts taxpayers must obtain and the forms they must
file.
- FOLLOW
STATE LAW REGARDING CAR TITLE AND LICENSE PLATES – Generally, state
officials ask the donor to transfer the car title to the charity’s
name and make a copy of the title transfer, when possible. In some states,
however, there are exceptions to this titling process, and an agent
can hold an open title or insert a dealer’s name. The donor should
remove the license plates, unless state law requires otherwise. This
will help avoid any liability problems after the car is transferred.
- CONTACT
STATE CHARITY AND IRS OFFICIALS WHEN IN DOUBT - Donors with questions
about whether a contribution is deductible should call the IRS at 1-800-829-
1040 or for TTY/TDD help, call 1-800-829-4059. They can also find IRS
forms and publications at the IRS Web site at http://www.irs.gov/bus_info/eo/index.html.
Donors concerned that contributions are being solicited for fraudulent
purposes should contact the appropriate state charity official, who
is often located in the state attorney general's office. A list of state
charity official offices can be found online at www.nasconet.org, and
a list of state attorneys general can be found at www.naag.org.
More than a quarter of the nearly 128 million Americans filing individual
returns claimed a tax deduction for a charitable contribution in 1999.
The value of these donations came to more than $122 billion.
Media Relations Office Washington, D.C. Tel. 202.622.4000
For Release: 12/3/01 Release No: IR-2001-112
Source: http://www.irs.gov/pub/irs-news/ir01-112.pdf
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