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IRS hits the brakes
New car donation rule hurts local charities

By Aldrich Tan/Staff Writer

June 30, 2005
When Michael Kelley decided to donate his 1991 Toyota 4Runner to the Visalia Emergency Aid Council, he was not thinking about a $5,000 tax deduction.

"It's nice to know that I get a write-off," said Kelley, 53. "But I just wanted to help an agency that is doing so much good for our community."

Last year donated car sales raised $110,000 for Visalia Emergency Aid, most of it spent to purchase food for 14,000 low-income and homeless families in Tulare County.

But this year the charity reported a 40-percent drop in car donations. If donations continue to drop, it stands to lose a third of its funding, said fund developer Charlie Wolff.

The reason: On Nov. 30, 2004, the Internal Revenue Service reduced what it would allow most taxpayers to deduct for donating a car. It said it would allow only the actual price that the charity sells the car for.

Previously, donors claimed the fair market value of the donated car. But investigations revealed that charity profits from car sales did not match the donors' tax returns.

A report in 2001 by the California attorney general's office found that most charities were getting less than 60 cents for every dollar of the value of the donated cars. A General Accounting Office nationwide investigation in 2003 confirmed the findings.

"The deductions that the taxpayers were claiming were unfair to the charities," IRS spokesperson Victor Omelczenco said.

Under the new regulations, donors can report the full market value of the car only if the charity itself uses the car or repairs it before it sells the car.

It's a loophole that Visalia Emergency Aid is eagerly jumping through.

"We have a mechanic who will fix the cars up," the agency's director, Reyes Zaragosa, said. "Donors need to know that if they donate a car to us, they can report the full market value of their vehicle on their tax return regardless of how much their car is actually sold for."

See Cars/8A

How car donations work

A summary of the new regulations for tax deductions claimed for donating a car to a charity:

If the charity sells your car without either using it first or repairing the vehicle, your deduction is limited to the price the charity got when it sold the car. You must get written acknowledgment from the charity within 30 days after the charity sells your car and attach it to your income tax return.

If the charity sells your car after using it or repairing it, you can deduct the fair market value of the car, taking into account its mileage and condition. The charity must also notify you within 30 days of the donation of its intent to use or repair your vehicle. You must also get a receipt that includes the charity's intent to use or repair the vehicle before sale.

IRS Publication 4303, "A Donor's Guide to Car Donations," is available on the IRS Web site at www.irs.gov.

Internal Revenue Service

Steve R. Fujimoto/Times-Delta

Becky Marshall, right, Denise and Melissa Richards, center, pile into a donated minivans Tuesday. They use the vehicles to run errands and attend classes at the Visalia Rescue Mission Family Center, Women's Division, 831 E. Houston Ave.
Section: Local
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