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By Kathy M. Kristof
Times Staff Writer
December 13, 2003
Congressional investigators released a blistering account of charity vehicle donation programs Friday, asserting that although the programs cost the government hundreds of millions of dollars in tax revenue each year, comparatively little money ends up in charity coffers. The report by the General Accounting Office takes on what has become a big, and controversial, business. About 733,000 Americans claimed tax deductions totaling $654 million for donating cars in 2000, according to the latest figures available.
The report, commissioned this year after problems with vehicle donation programs were revealed in congressional testimony, looked at a sampling of 54 donated cars to four charities in four states, including California. The findings: In the vast majority of the cases, the charities received amounts equal to less than 5% of the tax deductions claimed by donors. That was partly because the sale price of the car often amounted to a small fraction of the amount claimed by the donors as the fair market value. In addition, administration costs reduced the charities' net proceeds.
In the case of a 1990 Mercury station wagon examined in the report, the taxpayer claimed a $2,915 deduction for the donation. But the car sold at auction after the donation for just $30. In that case, the charity lost $130 on the deal after paying the costs of soliciting and selling the car.
In most other cases studied, charities did make money on the sales of donated cars. But the amounts received frequently were negligible. In 23 of the 54 sales examined, the charity received $20 or less.
Belinda Johns, a California deputy attorney general specializing in charities, said one problem with in-kind donations is that it can be difficult to account for the money. In addition, "From the IRS standpoint, the deduction claimed for them is easy to inflate," she said.
The sales price of donated cars in the GAO study usually amounted to less than 30% of the deduction claimed by the donor. In only three of the cases did the sales price equal more than half the donation claimed. In all but one case, the deductions claimed were under $5,000 — the Internal Revenue Service's limit after which donors must get a professional appraisal of a donated item to claim a write-off.
Charities, or their agents, sometimes suggest to consumers how much their car might be worth on the market. But the consumer is liable for determining the proper tax deduction.
The GAO report said the IRS already was aware that many deductions for auto donations were inflated, but the agency hasn't pursued audits of suspicious donations simply because it lacked sufficient resources. The GAO recommended that the IRS examine returns more carefully in the future.
IRS Commissioner Mark W. Everson, in a letter responding to the report, said the agency already had taken steps to improve reporting of donation programs. The IRS, through a recently launched audit program, also is looking at whether this is an area of widespread cheating by taxpayers, he said. An IRS spokesman said the agency planned to issue a consumer advisory Monday, urging donors to proceed carefully when giving away cars.
The California Franchise Tax Board also is looking at auto donations more carefully, spokeswoman Denise Azimi said. The agency has conducted about 10,000 audits a year of noncash contributions, but because this area appears rife with fraud, the FTB plans to focus more attention on the donations, she said. "Given the state of the state, we are looking at everything more closely," Azimi said. "We want to admonish people to deduct no more than the market value of the car."
An increasing number of charities have turned to vehicle donation programs in recent years in an effort to bolster their coffers, said Trent Stamp, executive director of charity evaluator Charity Navigator. The programs often are run by private fundraising companies. In some cases, the charity gets only a fixed amount — say $100 per car — no matter how much the fundraising company earns from a vehicle's sale, said Bennett Weiner, chief operating officer of the Better Business Bureau Inc.'s Wise Giving Alliance in Arlington, Va.
Sincere donors should be skeptical in light of the GAO report, Weiner said. People who have a vehicle in running condition that they're considering giving away should carefully check out the group soliciting their car, and make sure they understand just how much would go to the cause and how much would go to the fundraiser, he said. Additionally, he suggested looking for charities that planned to use donated cars in their operations — perhaps shuttling meals to the homeless or youths to after-school programs — rather than those that would sell a car to pocket the proceeds.
The BBB publishes a more thorough list of car donation tips on its Web site at www.give.org.
Copyright © 2003 Los Angeles Times
