- The Washington Times - Wednesday, December 28, 2005

American charities that count on car-donation programs are coming up millions of dollars short this year because of new Internal Revenue Service rules that went into effect Jan. 1.

Under the old law, taxpayers could claim the fair-market value of a donated vehicle on their income-tax returns. The new guidelines — signed into law as a provision of the American Jobs Creation Act of 2004 — limit the tax deduction to $500 or, with a written acknowledgment from the charity, the amount received by the charity for sale of the car.

Lawmakers who sponsored the rule change cited lost revenues from taxpayers who claimed more than fair-market value or inflated deductions for vehicles that were in poor condition.

Most charities sell donated cars at automobile auctions, netting amounts often significantly lower than the fair-market value.

“We are really disappointed,” said Ron Field, spokesman for Volunteers of America, a community-service organization that uses car-donation proceeds to fund programs for abused, elderly, disabled or homeless people. “December is typically a very good month, but it has not picked up this year nearly as much as it has in the past.”

The organization has lost between $4 million and $5 million in car donation revenues this year compared with last year, Mr. Field estimated.

“People are choosing to dispose of their cars in other ways, and that’s very unfortunate for organizations like ours,” he said.

At Melwood, an Upper Marlboro-based charity offering services for people with developmental disabilities, car-donation revenues are down nearly 35 percent from about $6 million in 2004 to $4 million this year, spokesman Jay Thomas said.

The charity depends on its car-donation program for 10 percent of its annual budget, Mr. Thomas said.

Revenues from the National Kidney Foundation’s Kidney Cars program slipped 21 percent to $11.6 million from January to September this year compared with $14.7 million during the similar period in 2004, said spokeswoman Ellie Schlam.

“We may have to work harder to get the cars, but we will do it,” Ms. Schlam said.

The new guidelines include three exceptions that would allow a taxpayer to deduct the fair-market value of a donated car. The so-called “intervening use” clause applies if a charity uses the car to perform essential functions such as delivering meals. A second exception would apply if the charity makes significant material improvements to the vehicle.

These exceptions are irrelevant for charities that lack the resources to make such improvements and for whom selling the cars yields a greater benefit than using them.

A third exception under which a taxpayer could claim fair-market value is if the charity sells the vehicle to a “needy individual at a significantly below-market price,” furthering its charitable mission.

The implementation of the new law and its exceptions has been confusing both charities and taxpayers, said Kay Bell, who covers IRS policy for bankrate.com.

As a taxpayer, “You’re going to kind of be stuck waiting to see what your deduction is going to actually be worth,” Ms. Bell said.

Those who donate vehicles by Saturday can claim deductions on their 2005 returns, according to the IRS, as long as they include a receipt from the charity received within 30 days of the vehicle’s sale. It takes about two months to auction off a donated car from the time it is received, said Betty Coco, director of the American Cancer Society’s car-donation program.

Deciphering the new deduction rules has been a problem for the society, whose Cars for a Cure program has brought in $1.2 million less since the tax rules changed, Ms. Coco said.

Despite a disappointing first year under the new guidelines, charities are optimistic that taxpayers will continue to donate cars.

“We’re obviously trying to educate people that it’s still a good deal for them, it’s still a good deal for us,” Mr. Field said.

Ms. Coco agreed.

“Once it settles down, people will forget about it or people won’t really care. They’ll go back to, ‘I still have a car and I still have to get rid of it,’” she said.

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