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Dramatic Decreases in Automobile Donations in 2005 Hurt Legitimate 501 (c)(3) Non-profit Organizations
from:Though never a large part of the budgets of most IRS sanctioned non-profit organizations (NPOs), recent rulings by Revenue Service (and instigated upon the recommendations of the General Accounting Office and the Senate Finance Committee) have cut automobile donations down quite a bit. Of course, there are plenty organizations that promote the public good through philanthropic and service missions that have need of automobiles. In 2003, the GAO found over 4,000 of them as being registered non-profits with the IRS and accepting automobile donations.
That said, the volume of donations that originated from automobile donations in most non-profits profiled were minuscule compared with stock and property donations over $500. Clothing and furniture donations to thrift stores represented a large percentage of non-cash donations. availability, automobile donations accounted for only 6% of an average NPO's budget.
Of course, there is no such thing as the average NPO. What has happened has been an increase in the number of people who are selling their vehicles and putting the proceeds towards their favorite charity or purchasing those stocks that will later be donated when they've accrued more value. There are also plenty of charities that actually do the selling themselves and take the time to make sales part of their training mission. This allows automobile donations to get a far higher price in the sale, which is useful if your car should be worth more than $500.
This also means that charities that can use a car directly have great need of automobile donations, even though the ever-present ads encouraging taxpayers to do so have become somewhat less prominent since the 2005 tax law changes. Generally, as ad revenues spent on advertising have gone down, so have the frequency of useful automobile donations, and this has sadly impacted some of the charities that can use those types of donations the most: those that serve a disadvantaged population directly through support or training.
As the practice of wholesale selling cars has gone by the wayside, third-party agencies that facilitate automobile donations have become somewhat less profitable, too. These companies, sometimes founded as non-profit organizations themselves, are now required to perform more accurate bookkeeping. As such, the market has shifted a bit to states that still allow these agencies to operate without oversight and the estimated 5% of third-party agents who handle automobile donations who have a non-profit mission themselves.
Many prominent stories that drove congress to finally act were also noted by the general public. Rates of giving declined precipitously in the 2005 tax season, as deduction rates decreased by as much as 90% when third-party agents handled automobile donations.
This is significant, since nearly all the charitable automobile donations in the United States were actually handled by third-party agents – usually for-profit businesses that are only very loosely regulated. At its peak in 2004, vehicle donation programs were thought to represent nearly $1 billion in reported automobile donations.
Partly the impetus for such legislation is the desire to curb any activity that uses charitable donations for private gain. But perhaps just as important to those in the halls of government are the lost revenues represented by the disparity between the revenues actually reported to NPOs versus the amount deducted from individual returns, even legally according to the law as it was written.
Regardless, charities that continue to benefit greatly from automobile donations include many valuable organizations, such as those who directly serve the poor with gifts of vehicles that can mean the difference between a paying job or not. Sometimes the only place one can find available in their price range is out of the range of public transit. Charities that handle automobile donations thusly are always looking for cars and trucks that require minnimal work to be made drivable and capable of being registered in the state.
Other programs include high school or college classes that teach repair classes with automobile donations. Though the market has fallen out of turning over automobile donations for quick profit, charities that legitimately can use your gift remain.
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