- The Washington Times - Tuesday, April 25, 2000

A few years ago, a relative casually mentioned at a family gathering that he was planning to donate a car to charity. My husband's ears perked up.

"Charity?" he queried. "Could I buy it?" My husband loves to buy old cars and keep them running forever, although the presence of children in his life has put a damper on this hobby. Nothing is worse than trying to explain a mechanical failure to hungry, tired children in the back seat.

The car earmarked for charity was a 1990 Audi Quattro dripping with luxury options, such as heated seats, seat position memory, a leather steering wheel and a self-adjusting "climate" control device that automatically dispenses the proper level of heat and air conditioning.

The car looked brand-new; it had been serviced at the dealer and kept in mint condition.

The charity lost out, needless to say. My husband's uncle was happy to sell to us. Although he would have gotten a tax break by donating the car to charity, one of his goals was to avoid the nuisance of selling the car privately.

Residents of large metropolitan areas such as Washington donate about 8,000 to 10,000 cars a year to charities, which sell the vehicles for an estimated $4.5 million, according to the Better Business Bureau. It is a good fund-raising technique for charitable organizations so good that many groups vigorously solicit donations of old vehicles. Radio advertisements promote the donations as a pain-free way to help a needy organization because consumers get a tax deduction.

But some groups may overstate the tax benefits, and consumers could wind up in trouble with the Internal Revenue Service. The IRS is taking a close look at the tax consequences of vehicle donations because of the increased popularity of donation programs.

Two areas of concern exist: Are vehicle owners properly calculating the fair market value of the cars they are donating? Are charities that sell the donated cars to a third-party auction house complying with the rules for charitable donations?

To avoid problems with the IRS and to make sure the charity fully benefits from the donation, here are some guidelines from the Better Business Bureau:

• Make sure the charity is eligible to receive car donations. The charitable organization must have tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. Ask the organization for a copy of its IRS Determination Letter, which is a two-page form that states whether the group meets tax-exempt guidelines. Churches may not have such a form because they are not required to apply for tax-exempt status. IRS Publication No. 78 contains a list of qualified charitable organizations.

• Verify the charity's track record. Request an annual report and IRS Form 990 to find out how the charity spent its funds in the previous year. Also, make sure the charity is registered to solicit donations with the state. This information is usually available from the state attorney general's office.

• Find out the plan for the donated cars. Many charities say the cars will be used to help deliver services, such as transporting people to jobs or doctors' appointments. Some groups that solicit donations through major ad campaigns sell the donated cars at auction, however. In cases where an 800 phone number is listed, a third-party company may be collecting cars on behalf of a number of charities. If this is the case, the charity may get only about 20 percent of the sale of the car.

• Make sure to get receipts and proper tax forms. The charity should mail a receipt saying it has received the car. This information must be provided to the IRS.

If the donated value is more than $500, the taxpayer must fill out Form 8283 to submit with the tax return for the tax year in which the donation was made. This form requires the following information: name and address of the organization receiving the gift, description of the property contributed, date of contribution, date the property was acquired, how the property was acquired and method for determining the property's fair market value.

If the claim is more than $5,000, a professional, written appraisal of the car is required for tax purposes.

• Use caution when determining the fair market value of the car. The industry benchmark for used-car prices is the Kelley Blue Book, which is available in libraries or on the Web (www.kbb.com). The listings are based on cars in good condition. Some vehicles may be worth less than the Blue Book value if they have been poorly maintained or have numerous dents and scrapes.

The IRS will raise a red flag in any case in which a taxpayer has set a fair market value for a vehicle donation that exceeds the price the charity gets for the sale of the car.

To avoid problems, taxpayers should document their donated vehicle's mileage, condition and features, and include photographs for supporting evidence.

Have a question on work or family finances? Get in touch with Anne Veigle at 202/636-3014 or by e-mail ([email protected]).

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