Crackdown on car donations has some charities worried

WASHINGTON -- Charities fear that potential donors may conclude it's not worth the hassle to donate used cars if Congress follows through with plans to clamp down on inflated tax deductions.

Lawmakers started looking into the subject a year ago when government auditors discovered a wide gap between the proceeds reaped by charities and the value of donated cars claimed on tax returns. Charities sometimes make pennies on the dollar of a car's estimated value.

The gap occurs because charities typically sell donated cars at dealer auctions for wholesale prices. Donors calculate their tax deductions by estimating the car's retail value, sometimes ignoring its condition and mileage. Congress and the Treasury Department want to narrow the gap.

Plans to limit tax deductions for donated cars have advanced in the House and Senate.

In the House, lawmakers picked up a proposal in President Bush's budget that would require donors either to have the vehicle appraised or to use a valuation formula developed by the Treasury Department when figuring their tax deduction.

In the Senate, proposed rules would require charities to send a letter to donors reporting the sale price. Donations of cars worth less than $500 could be deducted without a letter.

Charities have concerns about parts of both proposals.

"Significant social dollars would be lost, and there's no way to replace those. People would be hurt," said Earl Copus Jr., president of Melwood in Upper Marlboro, Md., which offers job training, employment, living assistance and travel for the disabled.

Melwood's program has been so successful that the center plans to finish building a garage next year and hire 50 to 75 disabled clients to clean and repair donated cars.

Senate Finance Committee Chairman Charles Grassley, whose committee asked government auditors to study the car donation program, contends the proposed changes put little additional burden on taxpayers or charities.

"It may make things easier for someone donating a car," Grassley, R-Iowa, said. "Taxpayers donating cars would know exactly how much they should deduct and not have to worry about audits if they guess wrong."

But Diana Aviv, president of Independent Sector, a coalition of 600 national charities and foundations, said too many costs could erode potential tax benefits. Donors might not want to pay for an appraisal to get the tax deduction, or might undervalue their cars to avoid paying for the appraisal.

"Don't go so low that nobody gives their car away," she cautioned.

Julia Andersen, manager of the national car donation program for the National Kidney Foundation, said their surveys show that people donate their cars to help the charity, for a free tow, and to get the tax deduction, in that order.

Asking taxpayers to pay for an appraisal could eliminate the lure of hassle-free donation, she said.

"That's not a free tow," she said. "The volume of donations would decrease."

The National Kidney Foundation gets $18 million a year, or 32 percent of its budget, from the sale of donated cars.

Goodwill Industries International Inc. wants lawmakers to instruct the Internal Revenue Service to provide taxpayers better guidelines on how to value donated cars.

"Value based on sale is not a workable solution," Goodwill President George Kessinger and Board Chairman Michael Elder wrote Grassley's committee. "It would discourage taxpayers from donating vehicles."

Lawmakers said charities are overstating the burdens that would be placed on them and on car donors.

Grassley said charities already have to send a letter to acknowledge receipt of a donated car. There's no reason charities can't use that letter also to report the sale price to donors, he said.