The government expects to raise tax revenue by more than $250-million a year, but charities complain.
By HELEN HUNTLEY
Published October 13, 2004
The joy ride is ending for taxpayers who have been claiming big deductions by donating their cars to charity. It won't be much fun for the charities either, which are likely to see a drop in donations.
Reacting to complaints of abuse, Congress put strict new limits on charitable donations of motor vehicles, boats and airplanes as part of the tax bill passed Monday. If President Bush signs it as expected, the new rules will take effect the first of the year.
"It's not going to be a good thing for us or for donors," said Janet Bass, vice president of operations for Florida Sheriffs Youth Ranches, which operates residential and camping programs around the state.
The government expects clamping down on the donations to boost tax revenue by more than $250-million a year.
Under the old rules, all it took was a receipt from the charity to claim a donation of less than $5,000. Donors determined the car's fair market value themselves, typically by consulting a used-car price guide such as the Kelley Blue Book, and making their own estimate of the car's condition. Under the new rules, donors will have that kind of leeway only if the claimed value is $500 or less.
Starting Jan. 1, donors generally will be able to deduct only the price the charity gets when it sells the donated vehicle. Charities will have to notify donors of the amount of the sale within 30 days.
There is an allowance for an estimated market value if a charity intends to use the vehicle in a significant way in its programs. However, Congress offered the IRS guidelines on what it considers significant and set financial penalties for charities that provide false information.
"The taxpayer can still donate his 1985 Pacer that goes only in reverse and the charity will get the same amount of money it always gets," said Sen. Chuck Grassley, R-Iowa, who pushed for the change. "The only difference is the taxpayer can't claim $5,000 for the car that will sell at auction for $50."
The General Accounting Office tracked 54 vehicle donations made in 2000 and found that in two-thirds of the cases, charities received 5 percent or less of the value than the donors claimed on their tax returns.
The office stopped short of accusing taxpayers of lying, noting that the vehicles often were sold at wholesale prices and selling costs were deducted.
However, there is no question that car donations have been lucrative for many donors and charities. In 2000, 733,000 taxpayers claimed vehicle deductions that reduced their taxes by $654-million.
The General Accounting Office estimates that 4,300 charities have vehicle donation programs, some of which bring in millions of dollars.
The Salvation Army is among the charities that actively solicit vehicle donations. Last year sales of those vehicles brought in about $600,000 for programs serving Pinellas and west Pasco counties.
"All this money goes into our rehabilitation program and supplements what we do in our thrift stores," said Maj. Charles Nowell, administrator of the adult rehabilitation center in St. Petersburg. "Our average vehicle sale is about $1,100. We try not to pick up anything that doesn't run."
He said he thinks a drop in donations is likely when people become aware of the new law.
"Chances are if they're not going to get much of a tax break for donating their vehicle, they'll probably just sell it," he said.
Bass at Florida Sheriffs Youth Ranches says she thinks the new rules shortchange donors, particularly since most donated cars are sold at auctions.
"What you typically see at an auction is a wholesale value versus a fair market value, which would be what donors would reasonably expect to be able to take as a tax deduction. Our auctions are open to the public and prices can vary. If it's a beautiful day and we have a lot of people there, things will go higher. It's an arbitrary way for a donor to be impacted."
She said the organization, which has its headquarters in Live Oak, had been considering opening an auction site in central Florida, but will wait to see how donations are affected by the change in the law. Auctions of donated vehicles brought in $753,388 in the 2002-2003 fiscal year.
