Vehicle Donations
Taxpayer Considerations When Donating Vehicles to Charities Gao ID: GAO-03-608T April 1, 2003According to the Internal Revenue Service (IRS), charities are increasingly turning to vehicle donation programs as a fund- raising activity, resulting in increased solicitations for donated vehicles. Therefore, to make informed decisions about donating their vehicles, taxpayers should be aware of how vehicle donation programs operate, the role of fund- raisers and charities in the vehicle donation process, and IRS rules and regulations regarding allowable tax deductions. Due to the increased use of vehicle donation programs, GAO was asked to describe (1) the vehicle donation process, (2) the amount of proceeds received by charities and fund-raisers, (3) donor tax deductions, and (4) taxpayer cautions and guidance.
Revenue from donated vehicles is a welcomed, and sometimes crucial, source of income for a number of charities. Donors, by following available guidance and making careful selection of charities for their donations, can provide charity support while benefiting themselves through tax deductions or disposing of unwanted vehicles. Taxpayers generally first learn about vehicle donation programs through advertisements. Interested donors call the advertised number and either reach a charity that operates its program in-house, or a third-party fund-raiser acting on the charity's behalf. The charity or fund-raiser asks questions of the potential donor regarding the vehicle, and then collects and sells the vehicle for proceeds. The proceeds a charity receives from a vehicle donation may be less than what a donor expects. Two factors contribute to this difference. First, charities often sell vehicles at auto auctions for wholesale prices rather than the prices donors may receive if they sold their vehicles themselves. Second, vehicle processing costs--whether the charity's or the fund-raiser's--- as well as the fund-raiser's portion of net proceeds further reduces the amount of proceeds a charity receives. Of the 129 million individual returns filed for tax year 2000, an estimated 733,000 returns had tax deductions for vehicle donations that lowered taxpayers' tax liability by an estimated $654 million. No data exist on whether these deductions were appropriately claimed. To assist donors in making decisions regarding vehicle donations, IRS and other organizations have issued guidance on steps potential donors should take before making vehicle donations. These steps include verifying that the recipient organization is tax-exempt, asking questions about vehicle donation proceeds, and deducting only the fair market value of the vehicle on tax returns.
GAO-03-608T, Vehicle Donations: Taxpayer Considerations When Donating Vehicles to Charities
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Testimony:
Before the Committee on Finance, U.S. Senate:
For Release on Delivery
Expected at
10:00 a.m. EST
Tuesday, April 1, 2003:
VEHICLE DONATIONS:
Taxpayer Considerations When Donating Vehicles To Charities:
Statement of Cathleen A. Berrick
Acting Director, Homeland Security and Justice:
GAO-03-608T:
GAO Highlights:
Highlights of GAO-03-608T, testimony before the Senate Finance
Committee.
Why GAO Did This Study:
According to the Internal Revenue Service (IRS), charities are
increasingly turning to vehicle donation programs as a fund-raising
activity, resulting in increased solicitations for donated vehicles.
Therefore, to make informed decisions about donating their vehicles,
taxpayers should be aware of how vehicle donation programs operate, the
role of fund-raisers and charities in the vehicle donation process, and
IRS rules and regulations regarding allowable tax deductions. Due to
the increased use of vehicle donation programs, GAO was asked to
describe (1) the vehicle donation process, (2) the amount of proceeds
received by charities and fund-raisers, (3) donor tax deductions, and
(4) taxpayer cautions and guidance.
What GAO Found:
Revenue from donated vehicles is a welcomed, and sometimes crucial,
source of income for a number of charities. Donors, by following
available guidance and making careful selection of charities for their
donations, can provide charity support while benefiting themselves
through tax deductions or disposing of unwanted vehicles.
Taxpayers generally first learn about vehicle donation programs through
advertisements. Interested donors call the advertised number and either
reach a charity that operates its program in-house, or a third-party
fund-raiser acting on the charity‘s behalf. The charity or fund-raiser
asks questions of the potential donor regarding the vehicle, and then
collects and sells the vehicle for proceeds.
The proceeds a charity receives from a vehicle donation may be less
than what a donor expects. Two factors contribute to this difference.
First, charities often sell vehicles at auto auctions for wholesale
prices rather than the prices donors may receive if they sold their
vehicles themselves. Second, vehicle processing costs”whether the
charity‘s or the fund-raiser‘s---as well as the fund-raiser‘s portion
of net proceeds further reduces the amount of proceeds a charity
receives.
Of the 129 million individual returns filed for tax year 2000, an
estimated 0.6 percent, or 733,000 returns, had tax deductions for
vehicle donations. These deductions lowered taxpayers‘ income tax
liability by an estimated $654 million of the $1 trillion tax liability
reported on returns. To assist donors in making decisions regarding
vehicle donations, IRS and other organizations have issued guidance on
steps potential donors should take before making vehicle donations.
These steps include verifying that the recipient organization is
tax-exempt, asking questions about vehicle donation proceeds, and
deducting only the fair market value of the vehicle on tax returns.
What GAO Recommends:
GAO is not recommending executive action. However, based on guidance
issued by the IRS and other sources, GAO identified several steps that
taxpayers should take before donating their vehicles and claiming tax
deductions. These steps include
*verifying that the recipient organization is tax-exempt,
*asking questions about vehicle donation proceeds,
*deducting only the fair market value of the vehicle, and
*following state laws regarding title transfer for vehicles.
www.gao.gov/cgi-bin/getrpt?GAO-03-608T.
To view the full testimony, click on the link above. For more
information, contact Cathleen A. Berrick at (202) 512-3404, or
berrickc@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our ongoing work on vehicle
donation programs. According to the Internal Revenue Service (IRS), an
increasing number of charities are turning to vehicle donations as an
effective way to raise money. In order to make informed decisions about
these donations, however, taxpayers should be aware of how vehicle
donation programs operate, the role of charities and third-party fund-
raisers in the vehicle donation process, and IRS rules and regulations
regarding allowable tax deductions.
The tax code generally allows taxpayers to deduct vehicle donations and
other noncash contributions from their federal taxes if the donations
go to certain qualified organizations such as churches and most
nonprofit charitable, educational, and medical organizations. There is
no national data identifying the percentage of charities that operate
vehicle donation programs,[Footnote 1] or the number of third-party
fund-raisers that solicit donated vehicles on charities‘ behalf.
The proceeds from vehicle donations can be an important, and sometimes
crucial, source of support for charities. One charity reported that
starting a vehicle donation program helped it avoid a potential deficit
after it had to cancel a major fund-raising event due to the events of
September 11, 2001. Other charities we spoke with estimated that
vehicle donations made up from less than 1 percent to about 98 percent
of their respective budgets. We plan to conduct a nation-wide survey of
charities to determine their use of vehicle donation programs, and the
importance of the programs to their operations.
Because charities have increasingly turned to vehicle donation programs
to raise funds, interest has been raised regarding how these programs
operate. Accordingly, you asked us to describe how vehicle donation
programs work, as well as information taxpayers should be aware of when
donating their vehicles. Today, I will discuss (1) the vehicle donation
process, (2) the amount of proceeds received by selected charities and
commercial fund-raisers, (3) donor tax deductions, and (4) taxpayer
guidance and cautions.
For my statement today, we relied on several sources, including an
analysis of donor surveys regarding vehicle donations conducted by two
charities, vehicle donation advertisements, and a sample of tax returns
where taxpayers claimed deductions for donated vehicles. To determine
how vehicle donation programs work, we also interviewed officials of
IRS, 10 states, 17 charities, 4 fund-raisers, and 5 related interest
groups. We began our review in October 2002, and plan to issue a final
report in September 2003.
In summary, our work to date shows the following.
* There are two basic types of vehicle donation programs: those
operated in-house by charities and those operated by third-party fund-
raisers. For in-house programs, charities advertise for donated
vehicles, pick up the vehicles, and sell the vehicles, generally at
auto auctions or they salvage the vehicles for parts. For fund-raiser
programs, fund-raisers generally perform the advertising, pick up, and
selling functions, and also retain a portion of the net vehicle
proceeds, after expenses. Individuals generally learn about vehicle
donation programs through advertisements. A small percentage of the
advertisements we reviewed could potentially mislead donors regarding
allowable tax deductions.
* Charities operating in-house vehicle donation programs, and those
using the services of third-party fund-raisers, consider proceeds
received from vehicle donations as a welcome source of revenue.
However, the total proceeds a charity receives from a vehicle donation
may be less than what a donor expects. We identified two factors that
contribute to this difference. First, charities and fund-raisers often
sell vehicles at auto auctions and receive wholesale prices rather than
the prices donors might receive if they sold their vehicles to private
parties. Second, vehicle processing and fund-raising costs are
subtracted from vehicle revenue, further reducing proceeds. Although
charity proceeds may be less than what a donor expects, results of
donor surveys identified that in addition to supporting charitable
causes, individuals most often donated their vehicles in order to claim
a tax deduction, or to dispose of an unwanted vehicle.
* Of the 129 million individual returns filed for tax year 2000, an
estimated 0.6 percent, or 733,000 returns, had tax deductions for
vehicle donations. The vehicle donation deductions totaled an estimated
$2.5 billion of the $47 billion in noncash contributions claimed. The
vehicle donations deductions lowered taxpayers‘ income tax liability by
an estimated $654 million of the $1 trillion tax liability reported on
returns.
* Because of the number of charities that are involved in vehicle
donation programs, IRS and other organizations have issued guidance on
steps potential donors should consider before donating their vehicles
to charity and claiming associated tax deductions. These steps include
verifying that the recipient organization is a tax-exempt charity,
asking questions about vehicle donation proceeds, deducting only the
fair market value of the vehicle, and following state laws regarding
title transfers for vehicles. In addition, in 2001IRS created a cross-
functional Donated Property Task Force to study issues surrounding
donated property, including vehicle donation programs, and identify
methods to monitor this area.
I would now like to discuss these areas in more detail.
The Vehicle Donation Process:
Individuals often first learn about vehicle donation programs through
advertisements. Vehicle donation advertisements can be found on
billboards, truck banners, and television, as well as in newsletters
and even on small paper bags. Some of the most common mediums for
vehicle donation advertisements include the radio, newspapers, and the
Internet.
Based on a sample of advertisements we reviewed,[Footnote 2] we found
that advertisements for vehicle donations often identified that
individuals could claim tax deductions for the donations, the donations
served charitable purposes, and the donors‘ vehicles would be towed
free of charge. Figure 1 identifies the most common claims made in the
newspaper, radio, and Internet advertisements we reviewed.
Figure 1: Most Common Claims in Newspaper, Radio, and Internet
Advertisements Reviewed:
[See PDF for image]
Note: GAO analysis of 147 vehicle donation advertisements. Claims
classified as ’other“ included promises that vehicles would be picked
up in 24 hours, title transfer would be handled, or contributions would
be used locally.
[End of figure]
IRS has expressed concern about some vehicle donation
advertisements.[Footnote 3] According to an official from IRS‘s Tax
Exempt Division, tax deduction claims are potentially deceptive when
they do not specify that taxpayers must itemize their deductions to
claim a vehicle donation, since many taxpayers do not itemize. Of the
147 advertisements we reviewed, 117 identified that taxpayers could
claim a tax deduction, but only 7 advertisements specified that donors
must itemize in order to claim a deduction.
IRS also expressed concern when advertisements claim donors can value
their vehicles at full, or maximum, market value when claiming a tax
deduction. IRS does not define full or maximum value, but believes
these claims may be misleading since vehicles are required to be valued
at fair market value. IRS stated that these advertisements may be
particularly misleading when they also claim that vehicles will be
accepted whether they are running or not. Fair market value equals what
a vehicle would sell for on the market, and takes into account a
vehicle‘s condition and mileage, among other factors. Of the 117
advertisements we reviewed that mention tax deductions, 38 specified
that donors could claim fair market value on their tax returns when
donating their vehicles; while 8 identified that a donor could claim
full or maximum market value. Other advertisements referred potential
donors to the IRS Web site, an accountant, used car guides such as the
Kelley Blue Book,[Footnote 4] or other sources for guidance on claiming
a tax deduction.
After deciding to donate a vehicle to charity, a donor will generally
encounter one of two types of vehicle donation programs: those operated
by charities (in-house) and those operated by a for-profit or not-for
profit fund-raiser (fund-raiser). Donors may not know whether they are
donating vehicles directly to charities or through fund-
raisers.[Footnote 5] Figure 2 identifies the vehicle donation process
for both in-house and fund-raiser vehicle donation programs.
Figure 2: Vehicle Donation Process:
[See PDF for image]
[End of figure]
For in-house programs, charities, typically larger ones, advertise for
vehicle donations, and respond to donor‘s initial call inquiring about
a donation. After the charity determines that it will accept the
vehicle,[Footnote 6] it arranges to have the vehicle picked up, often
towed, and delivered to wherever it will be stored until it is
liquidated. The charity provides the donor with a receipt when the
vehicle is picked up, or at a later time to document the donation for
tax purposes. At the time the vehicle is picked up, the charity obtains
the title of the vehicle from the donor, and some charities may provide
donors with state-required forms (e.g., release of liability) or
references for establishing the tax deductible value of their donated
vehicles (e.g., Kelley Blue Book or IRS guidance). Charities we spoke
with stated that it is up to the donor to establish the vehicle‘s
value. Once the donated vehicles are collected, they are generally sold
at auto auctions or salvaged for parts, but may also be sold to auto
dealers or to the general public. Charities with in-house programs keep
100 percent of the net proceeds after deducting costs associated with
processing the vehicles.
For fund-raiser programs,[Footnote 7] fund-raisers generally perform
some or all of the tasks associated with advertising, vehicle pick up,
and vehicle disposal. After deducting expenses, fund-raisers keep a
portion of the net proceeds from the vehicle sale or salvage, providing
the remainder of the proceeds to the specified charity. A charity
working with a fund-raiser may have no oversight of the process,
leaving the operation of the program, and distribution of proceeds, up
to the fund-raiser.
The relationship between charities and fund-raisers varies, depending
on the agreements they have established. Some commercial fund-raisers
may handle vehicle donation programs for many charities. For example,
one national fund-raiser has contracts with about 140 charities, and
another works with about 200 charities. Charities may also contract
with multiple fund-raisers. Fund-raisers often support smaller
charities that would not otherwise be able to participate in vehicle
donation programs. For example, at one California charity, a staff
person spent half her time working with two vehicle donation fund-
raisers, which together generated about $110,000 for the first six
months of the current year (approximately
8 - 10 percent of its annual budget).
In addition to the in-house and fund-raiser programs described above,
we identified some variations in how vehicle donation programs operate.
For example, see the following.
* Some charities refurbish donated vehicles for their own program
services or clients, rather than for sale or salvage.
* One state consortium of 14 charities jointly runs a vehicle donation
program in conjunction with a wrecking yard. The charities share in
oversight of the operations, such as inspecting donated vehicles and
monitoring vehicle donation reports. Donors can select one charity to
receive the proceeds, or proceeds are split among members of the
consortium equally if no charity is designated.
* One large charity runs a national vehicle donation program and serves
regional offices as a fund-raiser would, charging its regions vehicle
processing costs. Some of the charity‘s affiliates choose other fund-
raisers and do not participate in the national program.
* Another large charity runs a national program and serves charity
affiliates but also has a nonprofit vehicle donation program for other
smaller charities.
Vehicle Donation Proceeds:
The total proceeds a charity receives from a vehicle donation may be
less than what a donor expects. We identified two factors that
contribute to this difference. First, charities and fund-raisers often
sell vehicles at auto auctions for wholesale or liquidation prices or
to salvage yards for parts, rather than obtaining the amount they would
receive if vehicles were sold to private parties. Second, vehicle
processing and fund-raising costs are subtracted from vehicle revenue,
further lowering proceeds.
According to a survey of year 2001 charitable donors commissioned by
the Wise Giving Alliance, donors expect at least 70 to 80 percent of a
charity‘s funds to be used for charitable purposes rather than fund-
raising or administrative costs. Actual charity receipts reported to
state officials for charity fund-raising are less. For example, in New
York telemarketing fund-raisers (not specifically vehicle donations)
returned 32 percent of funds raised for charities in 2000. Although
donors are often motivated by serving a charitable cause when donating
their vehicle, the results of donor surveys identified that individuals
are also motivated by the ability to claim a tax deduction and to
dispose of an unwanted vehicle.[Footnote 8]
Figure 3 provides an example of the amount a charity received from an
actual vehicle donation. In this case, a 1983 truck was donated in 2001
to a charity whose vehicle donation program is operated through a fund-
raiser. The gross sale price for the truck (sold at an auction) was
$375. After deducting fund-raiser and advertising expenses, net
proceeds totaled $63.00. This amount was divided evenly between the
fund-raiser and charity, leaving the charity with $31.50 from the
vehicle donation. The donor claimed a deduction of $2,400 on his or her
tax return, based on the fair market value of the vehicle as identified
in a used car guidebook.
Figure 3: Example of Vehicle Donation:
[See PDF for image]
[End of figure]
Note: GAO analysis of an actual vehicle donation.
Charities operating in-house vehicle donation programs incur costs
associated with processing vehicles for sale or salvage, but do not
incur additional fees generally associated with fund-raiser programs.
Processing costs cannot be compared among in-house programs because
charities may record their costs differently. One of the few in-house
charities we spoke with reported that it earned a net average of 42 to
44 percent of the sales price of donated vehicles. Another charity
operating a national program for local affiliates reported a range of
13 to 32 percent net proceeds for programs operating for over 2 years,
and a deficit to slightly in excess of breakeven for newer programs.
Proceeds received by charities participating in vehicle donation
programs run by fund-raisers also varied, in part due to the different
processing costs deducted by fund-raisers, as well as different
agreements between charities and fund-raisers for splitting net
proceeds. Some charities receive a percentage of the net proceeds,
after the fund-raisers costs are deducted. Other charities receive the
net proceeds remaining after the fund-raiser deducts a flat fee for
expenses.
California is the only state that systematically captures information
on the percentage of proceeds received by charities through vehicle
donation programs.[Footnote 9] However, California only captures
information related to programs run by fund-raisers, and cannot
separately identify the number of charities that operate in-house
programs. According to a report from the California State Attorney
General‘s Office, less than 1 percent of registered charities in
California have vehicle donation programs that are managed by
commercial fund-raisers. In 2000, these fund-raisers generated
approximately $36.8 million in sales revenue, with about $11.3 million
(31 percent on average) being returned to the charities. As shown in
figure 4, California charities received proceeds from fund-raiser
programs ranging from less than 20 percent to over 80 percent of the
net proceeds from vehicles, but most were in the 40 - 59 percent range.
Figure 4: Vehicle Donation Proceeds to California Charities Using Fund-
raisers:
[See PDF for image]
[End of figure]
Issues relating to charity proceeds from fund-raising reached the
Supreme Court on March 3, 2003, in arguments related to ’Ryan v.
Telemarketing Associates“. The Attorney General of Illinois is
appealing a decision of the Illinois Supreme Court[Footnote 10] to
dismiss fraud charges against Telemarketing Associates. At issue were
solicitations implying that cash donations would go to a charity to buy
food baskets and blankets for needy veterans, while only 15 percent of
the funds raised actually went to the charity. As part of the case,
donor affidavits were reviewed stating that some individuals would not
have donated if they knew the percentage of proceeds the charity would
actually receive. The Supreme Court has ruled in three previous cases
that percentage-based limitations on charitable solicitations were
unconstitutional. The Supreme Court decision in this case is not
expected until July 2003.
We plan to conduct a national survey of charities to further review
vehicle donation proceeds received by charities and fund-raisers. We
will identify any concerns regarding the amount of net proceeds fund-
raisers keep from vehicle donations and the significance of vehicle
donation programs to charity operations. Charities may consider
proceeds from vehicle donations to be a welcomed, if not crucial,
source of revenue to support their operations. For example, one charity
stated that vehicle donations are ’just keeping their heads above
water.“:
Donor Tax Deductions:
The results of donor surveys we reviewed indicated that the ability to
claim a tax deduction is one of the most important reasons individuals
donate vehicles to charity. However, we found that a small percentage
of Americans claim tax deductions for vehicle donations. Specifically,
we reviewed a representative sample of taxpayer returns that claimed
noncash contributions for the tax year 2000. Of the 129 million returns
filed that year, a projected 0.6 percent, or an estimated 733,000
returns[Footnote 11], had tax deductions for vehicle donations.
We also found that deductions for vehicle donations accounted for a
small fraction of forgone tax revenue. Based on the sample we reviewed,
vehicle donation deductions totaled an estimated $2.5 billion[Footnote
12] of the $47 billion in noncash contributions claimed.[Footnote 13]
Stocks and thrift store donations accounted for most of the tax dollars
deducted for noncash charitable contributions. We estimate that in
2000, vehicle donations deductions lowered taxpayers‘ income tax
liability by an estimated $654 million[Footnote 14] of the $1 trillion
tax liability reported on returns.
IRS guidance limits the amount of an allowable deduction to the
vehicle‘s fair market value, or the amount a willing, knowledgeable
buyer would pay for the vehicle. We reviewed each deduction for vehicle
donations in our sample to determine the average value claimed for
donated vehicles in 2000, and whether these values fell within the
ranges identified in a nationally recognized blue book. We estimated
that the average value claimed for donated vehicles in 2000 was
$3,370,[Footnote 15] and that the amounts claimed for almost all of
these vehicles fell within the blue book. However, since we did not
have additional information regarding the vehicles‘ condition and
mileage, we could not determine whether reported values accurately
reflected fair market value.
For a donor to claim a vehicle tax deduction, the contribution must be
made to a qualified organization. Churches and most nonprofit
charitable, educational, and medical organizations are
qualified.[Footnote 16] We submitted the names of charities from our
sample that taxpayers reported on their returns to IRS to verify
whether the recipient organization was qualified to receive tax
deductible donations. Of the 22 charities IRS reviewed, it was able to
verify that 10 of the charities were qualified to receive tax-
deductible donations. IRS could not determine whether the remaining 12
charities were qualified organizations because it needed more
information than taxpayers reported on their tax returns, such as the
organizations‘ full names and addresses and employer identification
numbers.
IRS has a compliance program to review noncash donations, including
vehicle donations generating revenue over $5,000, which compares the
amounts received by a charity upon the sale of a donated item with the
amount claimed by the taxpayer as the fair market value of the
item.[Footnote 17] Although differences exist between fair market
values and the proceeds from items sold at wholesale prices, this
program gives IRS an indication of whether a particular donation should
be further scrutinized. However, IRS has no data identifying whether
cases referred for further review by this program are ever pursued.
IRS is also in the process of implementing a National Research Program,
which may provide data on compliance issues dealing with vehicle
donations and other noncash contributions. Under the program, officials
will randomly select about 49,000 tax year 2001 returns to determine
whether taxpayers complied with statutory income, expense, and tax
reporting requirements. Returns with noncash contributions, including
donated vehicles, could be subject to audit to verify donation claims.
Once this project is completed, IRS plans to assess individuals‘
compliance related to deductions for noncash contributions, and
determine whether more enforcement is needed to help ensure proper
reporting in this area.
Taxpayer Guidance and Cautions:
IRS and other organizations, including the National Association of
State Charity Officials and the Better Business Bureau, have issued
guidance on steps potential donors should take before donating their
vehicles to charity and claiming associated tax deductions. These steps
include the following.
* Verify that the recipient organization is a tax-exempt charity.
Potential donors can search IRS‘s Publication 78, which is an annual
cumulative list of most organizations that are qualified to receive
deductible contributions.
* Determine whether the charity is properly registered with the state
government agency that regulates charities. The state regulatory agency
is generally the state attorney general‘s office or the secretary of
state.
* Ask questions about how the donated vehicle will be used to determine
whether it will be used as intended. Such questions include the
following: Will the vehicle be fixed up and given to the needy? Will it
be resold, and if so, what share of the proceeds will the charity
receive?
* Itemize deductions in order to receive a tax benefit from the
donation. The decision to itemize is determined by whether total
itemized deductions are greater than the standard deduction.
* Deduct only the fair market value of the vehicle. The fair market
value takes into account many factors, including the vehicle‘s
condition, and can be substantially different from the blue book value.
IRS Publication 526, ’Charitable Deductions,“ and IRS Publication 561,
’Determining the Value of Donated Property,“ provide instructions on
how to calculate the fair market value of donated property.
* Document the charitable contribution deduction. IRS Publication 526
identifies requirements for the types of receipts taxpayers must obtain
and the forms they must file.
* Follow state law regarding the car title and license plates.
Generally, the donor should ensure that the title of the vehicle is
transferred to the charity‘s name, by contacting the state department
of motor vehicles, and keep a copy of the title transfer. Donors are
also advised to remove the license plates, if allowed by the state.
The IRS and the states have identified few significant occurrences of
abuse by charities and fund-raisers operating vehicle donation
programs. However, the guidance above may help potential donors avoid
donating vehicles to organizations that have not complied with laws or
regulations related to vehicle donation activities, and prevent
problems sometimes encountered with vehicle title transfers. For
example, see the following.
* IRS revoked the charity status for one Florida organization that
solicited boat donations after finding that its charitable activities
were insubstantial, and that proceeds were kept for personal gain.
* California charity officials prosecuted and jailed the owner of a
used car lot soliciting vehicles for charity. The organization raised
an estimated $1 million, none of which benefited charity.
* In Massachusetts, a for-profit company solicited cars through
newspaper ads, and led potential donors to believe that the
organization was a charity and that all, or a substantial portion of,
proceeds would go to a charitable purpose. In May 2002, Massachusetts
brought an enforcement action in which the company‘s president agreed
to cease all further activity related to the car donation operation and
dissolve.
* According to state agency officials, they often receive complaints
from donors when charities do not transfer vehicle titles as promised.
Donors found themselves responsible for parking violations, penalties,
and in some cases damages when donated vehicles were subsequently
involved in accidents.
In addition to noncash contributions guidance found in various IRS
publications and news releases, the IRS has publicized guidance
regarding vehicle donations, and developed a training video for state
and IRS compliance regulators. In 2001 IRS also created a cross-
functional Donated Property Task Force to study issues surrounding
donated property and identify methods to monitor this area. The task
force, in cooperation with the National Association of State Charity
Officials, is also surveying state charity officials to identify
information that states collect on charity fund-raising, and on vehicle
donations in particular. As of March 2003, only California reported
having data available on vehicle donation handled by fund-raisers.
Mr. Chairman, this completes my prepared statement. I would be happy to
respond to any question you or other Members of the Committee may have
at this time.
(440167):
FOOTNOTES
[1] We use the term ’vehicle donation“ to refer to vehicles, boats, and
farm equipment donated to a charity, although vehicles are most
commonly donated. The term ’vehicle donation program“ refers to
situations wherein a charity officially solicits donated vehicles,
rather than occasionally accepting unsolicited vehicles.
[2] We analyzed 147 advertisements for vehicle donations, including 69
newsprint advertisements from a sample of 50 newspapers nationwide, 33
radio advertisements from 19 radio stations in the top 10 U.S. markets,
and 45 Internet advertisements. Our results cannot be projected to all
vehicle donation advertisements.
[3] Responsibility for oversight of advertisements is diffused. The
Federal Communications Commission defers regulatory authority
regarding false advertising on radio or television to the Federal Trade
Commission (FTC). FTC is charged with taking action against unfair or
deceptive acts that affect commerce. FTC does not have specific
jurisdiction over charities, but may become involved in cases of fraud.
State officials are primarily responsible for false advertising by
charitable organizations. Officials we interviewed from two states said
that limited resources prevent them from providing broad oversight over
advertisements, and that they generally review advertisements in
response to consumer complaints, or when they discover that charities
or fundraisers are soliciting in their state without being registered.
[4] The Kelley Blue Book is one of several guides listing values for
various models of used vehicles based on their condition and mileage.
[5] This may not be a factor for donors if their primary motivation is
disposing of their vehicle.
[6] When a charity or commercial fundraiser receives the initial call
from a potential donor, the donor is asked questions about the vehicle,
including the vehicle‘s make, year, and condition, and whether the
donor has the title. Some programs will only accept vehicles expected
to produce a profit after towing and other expenses. Charities
sometimes will accept vehicles regardless of condition, because, as one
charity stated, they view accepting vehicles with little value as
generating goodwill for future donations.
[7] Some charities perform vehicle donation fund-raising for other
charities, but most of the vehicle donation fund-raisers we identified
were for-profit businesses.
[8] Two charities shared voluntary feedback provided by vehicle donors.
Over 3,000 donors responded in one survey and about 400 responded in
the other. We did not review the methodology for the surveys and
consider the results to be illustrative.
[9] National data on the proceeds charities receive from vehicle
donation fund-raising do not exist. Although IRS‘s Form 990 collects
information from charities on fund-raising costs, it does not identify
the portion, if any, related to vehicle donations.
[10] The Illinois Supreme Court held that the fund-raiser‘s conduct was
protected under the First Amendment and the Attorney General‘s
complaint was not legally sufficient because it was an attempt to
impose a constitutionally impermissible percentage-based limitation on
the fund-raiser‘s ability to engage in a protected activity.
[11] Ninety-five percent confidence intervals:0.6 percent +/-0.2
percent, and 733,000 returns +/-520,000 returns.
[12] Ninety-five percent confidence interval: $2.5 billion +/-$2.0
billion.
[13] Our estimates are based on taxpayers who were required to file
Form 8283, ’Noncash Charitable Contributions,“ for noncash
contributions exceeding $500. Some of these taxpayers may have claimed
tax deductions for vehicle donations, but they were not required to
list these transactions on their returns.
[14] Ninety-five percent confidence interval: $654 million +/-$480
million.
[15] Ninety-five percent confidence interval: $3,370 +/-$790.
[16] Other types of organizations that qualify for donations include
war veteran organizations, domestic fraternal societies, certain
nonprofit cemetery companies or corporations, and the United States and
any state or local government.
[17] Charities file Form 8282 when donated property valued at over
$5,000 is disposed of within 2 years of receiving it.
