Closer Look at Deductions for Donations to Charity
By STEPHANIE STROM
Published: December 12, 2003
haritable donations of everything from mittens and food to property and planes is coming under Congressional scrutiny, thanks to research raising questions about the real value of donated vehicles.
A report to be released Friday by the General Accounting Office, the investigative arm of Congress, finds that there were often wide discrepancies between the value donors of vehicles claimed as deductions on their tax returns and the amount received by the charities that were their beneficiaries.
Vehicle donations cost the government $654 million in tax revenue in 2000, but the study suggests that charities received less than 5 percent of the value donors claimed in two-thirds of 54 donations to four charities that gave information to the agency.
For instance, one taxpayer valued his 1994 Saturn SL2 Sedan at $5,750, the car sold for $1,350 and the charity received $968. In another case the G.A.O. examined, a taxpayer valued his 1986 Toyota 4-Runner at $3,950 on his tax return, the vehicle sold for $300 and the charity received $5.
In six of the cases, so little value was realized that the charities ended up owing money to the middlemen who handled the vehicles.
"This report further exposes what's proving to be a rat's nest of problems in the area of aggressive valuation of in-kind gifts," said Senator Charles E. Grassley, chairman of the Senate Finance Committee.
Mr. Grassley, an Iowa Republican, said his concerns went well beyond cars. "Donations of land, art and intellectual property are all raising concerns," he said. "The Finance Committee will look at significant reforms in this area."
A committee staff member said it would probably consider a measure limiting the deduction vehicle donors can claim to the amount charities receive for the vehicles. The committee is also looking into using the Internal Revenue Service's Art Advisory Panel, which examines values placed on donated art when questions arise, as a model for appraising claims for other noncash gifts.
"We are looking at boats, planes, land, art, patent donations, pharmaceuticals," the staff member said. "All those things are open to abuse."
Noncash donations are a growing part of the philanthropic world. More than 30 percent of corporate philanthropy is in the form of donated goods, according to surveys by the Conference Board, a business research organization, and more charities are courting in-kind gifts.
The U.S.O., which provides support to American military personnel, started accepting cars as donations in January. At the end of October, it had received $94,000 from 215 cars that were donated to it, or about $437 a car on average. That is just a fraction of the $60 million the U.S.O. has raised this year, but in charity, every nickel and dime counts.
"It's a very easy way for us to make money," said Diane L. Rogers, the organization's director of corporate giving.
The America's Car Donations Charity Center handles the donation for the U.S.O., determining whether the vehicle offered will generate any money, towing it, transferring title and selling it. The U.S.O. gets 80 percent of the proceeds after charges related to the disposal of the vehicle are deducted.
Critics and regulators say noncash philanthropy is rife with abuse. While the Internal Revenue Service has a compliance program to detect inflated valuations, it has told Congressional investigators that it does not follow up on leads because it has higher priorities.
What is more, the I.R.S. plans to end the program in January, although in response to the general accounting report, Commissioner Mark W. Everson said the agency planned to reassess the program.
A spokesman for the I.R.S. declined to comment on the report.
Rick Cohen, executive director of the National Committee for Responsive Philanthropy, a nonprofit watchdog group, said: "I've always been concerned about the donation of anything that isn't cash. Cars are the tip of the iceberg in terms of noncash donations that warrant a whole new level of scrutiny."