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Protecting Yourself From the Alarming Rise in Fraudulent Car Donation Programs
from:According to the General Accounting Office's (GAO) 2003 report to the Senate Committee on Finance, the incidence of mis-reporting from car donation programs was out of control. In 2005, some changes were made to the rules that govern car donations and the subsequent deductions that are allowed.
However, the report also showed that an alarming 95% of third-party agents that facilitated the donations for perfectly legitimate charities and non-profit organizations (NPOs) were for-profit organizations that ate up as much as 70% (and sometimes even more) of the profits from the sale of donated automobiles. This means that a very paltry amount of the proceeds from such sales were actually reaching the charities.
Since the 2005 changes took effect, the previously very lucrative business of selling donated cars for IRS authorized charities that didn't have in-house resources for dealing with automotive donations, has become somewhat less profitable. As such, the proportion of third-party car donation programs that operate for profit has declined.
That doesn't mean you don't have to be diligent about the type of car donation programs you look into when deciding to donate a used car to charity. There are still several states (many of them in the Western United States) that don't require such car donation programs to register with the state Attorney General's office. If you live in one of these states, you'll have to be very careful about the ultimate use of your car, since the amount you'll be able to legally deduct without attracting the attention of auditors is tied its use.
For starters, you should check all car donation programs to see that they are actually representing charities and non-profits that are sanctioned as charitable organizations by the IRS. If in doubt, ask someone at the charity in question how their relationship with the third-party agent works. If they are not in control of the program, there could be room for citing exorbitant overhead costs, despite increased regulation of such overhead costs since 2005.
Car donation programs should be able to give you a good idea of how the donated car will ultimately be used. Your benefit in the form of allowed deductions will be higher if the car is to be used by the charity itself (such as is the case with Meals on Wheels) or given to a needy family that needs reliable transportation. If this involves fixing the car up before being given away, the value of the repaired car may be deducted.
It also behooves a donor to inquire as to how the vehicle will be rehabilitated. Car donation programs that are known for performing such repairs as part of an educational mission will make it especially easy for you to claim the fair market value of the car, even if it is eventually sold to someone (such as one of those needy families) at a deeply discounted rate.
If one of the car donation programs you've chosen doesn't seem to be forthcoming with answers to your questions, check with the state Attorney General or other organization that is responsible for monitoring such agents. Even in a state without such oversight, some private organizations, such as the Better Business Bureau, have their own lists of reputable car donation programs that may be better able to serve your charitable desires. Indeed, this might be the best place to begin your search.
It is also useful to note that all car donation programs are required to give you a receipt within 30 days of picking up your car, though the receipt of sale is what you will actually use to value your donated automobile for deduction purposes. If the charity in question will be spending some time fixing the car up or using it for their own charitable purposes, you should still expect some paperwork to that effect. If you don't get it within a month of your car donation, you should call to check up on the status of your receipt.
It has become far easier to check on the charitable mission of car donation programs in recent years. A little bit of homework on your part will help you avoid unscrupulous car donation programs that have little, if anything, to do with the charities they claim to represent. Check twice and donate once.
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