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GAO
hits car donation disparity
By
Joyce Howard Price, THE WASHINGTON TIMES
December
13, 2003
A
General Accounting Office report released yesterday
found big discrepancies between the dollar amounts many
Americans claim as deductions for car donations on their
tax returns and the money charities actually receive
from the sales of the vehicles.
"The
proceeds received by charities from vehicle donations
were 5 percent or less of the value donors claimed as
a deduction on their tax returns for the majority of
the ... vehicle donations we tracked," the General
Accounting Office, the investigative arm of Congress,
said in its report that was requested by the top Republican
and Democrat on the Senate Finance Committee.
Sen.
Charles E. Grassley, Iowa Republican and committee chairman,
and Sen. Max Baucus, Montana Democrat and ranking member,
sought the report with an eye toward making changes
in the law that would require taxpayers who donate cars
— as well as land, planes, boats, art and intellectual
property — to make more accurate valuations of the gifts
on their tax forms.
On
the car-donation front, one strategy receiving strong
consideration would be to require donors to limit the
value of their car gift to the amount a charity can
sell it for.
"Right
now, this is an area where no one is watching the henhouse,"
said Dean Zerbe, senior counsel for the Senate Finance
Committee.
The
GAO report estimates that in the 2000 tax year alone,
"Vehicle donation deductions lowered taxpayers'
income by $654 million.
"When
you add in intellectual property, land and art, it adds
up to billions of dollars [of tax revenues] that are
lost year after year," Mr. Zerbe said in an interview.
He
pointed out that taxpayers who value donated vehicles
at $5,000 or more must provide an independent appraisal
of its worth. But vehicles valued at less than $5,000
do not require this appraisal.
The
report documented situations in which the owner of a
donated 1986 Toyota 4-Runner claimed its value to be
$3,950 on his income tax return. But the charity that
received the sport utility vehicle sold it for $300
and netted only $5 from its sale.
Likewise,
the owner of a red Honda Accord LX1 2D with an unlisted
model year put its value at $4,175 for tax-deduction
purposes. But the charity that was given the vehicle
sold it for only $150 and got only $10 in net proceeds.
"As
the GAO report on car donations highlights, charities
are receiving only pennies on the dollar from the donations
of used cars," Mr. Baucus said in a statement.
"And even more concerning, the tax breaks individuals
receive for these donations are costing the government
millions of dollars a year."
Said
Mr. Grassley: "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 ... the Finance
Committee will look at significant reforms in this area
as we consider the charitable giving bill early next
year."
The
GAO said annual net proceeds from car donations for
2002 reported by charities it interviewed ranged from
as little as $1,000 for two vehicles donated to a senior
center to more than $8.8 million for one national charity
that received more than 70,000 vehicles.
The
report tracked 54 specific vehicle donations.
In
talks with officials of charities and third-party agents
responsible for selling the donated cars, the GAO came
up with two reasons, it said, explained "in part"
why charity proceeds from vehicle donations were "much
less than the value deducted by donors on their tax
returns."
One
reason, the agency said, is that donated vehicles are
"often sold at auto auctions for salvage or at
wholesale prices, which are typically lower than prices
that would be received if the donor sold the vehicle
themselves."
What's
more, the agency said, "processing costs and fees
are deducted from gross sales revenue, further reducing
charity proceeds."
Pete
Sepp, spokesman for the National Taxpayers Union, says
it's not clear whether these are cases of "taxpayers
misrepresenting the value of deductions" or of
"middlemen taking large cuts that whittle down
the value [of a donated vehicle] to a charity."
Until
Congress finds out what's going on, "taxpayers
should not be taking the brunt."
Mr.
Grassley expressed concern that the GAO report found
evidence the IRS may be "turning a blind eye to
charitable gifts that have been red-flagged as possible
problems."
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