The Internal Revenue Service (IRS) is calling for public comment on a scheduled reevaluation on the codes that stipulate rules for charitable contributions of certain motor vehicles, boats and airplanes.
Every three years the IRS takes into account new perspectives and ideas on how tax codes can be changed to make processes run smoother and more effective. The last time this code changed was 2005.
Written comments should be received on or before November 7th 2011 and be directed to Yvette B. Lawrence, Internal Revenue Service, room 6129, 111 Constitution Avenue, NW., Washington, DC 20224
Requests for additional information or copies of notice should direct to Elaine Christophe, at (202) 622-3179, or at Elaine.H.Christophe@irs.gov.
According to the latest statistics provided by the IRS, car donations dropped by almost 68 percent in 2005, from nearly 1 million donations in 2004 to only 311,451.
Elaine Christophe, a representative for the IRS, did not believe any changes would be made to the current tax code adding that the call for public comment is part of a planned three year revision on all tax codes.
Brian Menzies, president of Charity Cars, headquartered in Longwood, Fla., believed that no changes would be made to the current tax code. In terms of increasing the charitable deduction, Menzies said the government wants to “generate more taxes, not less.”
“I don’t think anything is going to change,” said Menzies. “Some people would like to see the law changed so that people could get fair market value based on their car value. It would increase business, but the biggest winners would be these for-profit fundraisers, not the charities who actually need the cars or money raised by an auction.”
The rules changed and decreased the charitable deduction to $500 in 2005. Previously, it was up to $5,000. However, if your car had greater value and is used for an organization’s specific mission, you can write off the actual market price with proper documentation from the charity.
The for-profit car auctioneers may be the biggest problem says Menzies. A 2008 study done by the Government Accountability Office (GAO), indicated that even though the vast majority of car auctions are done by 3rd party, for-profit companies, little of the funds they raise actually get back to the charity.
“The charities have just prostituted their IRS status and only get 35 percent of the money on average,” said Menzies. “I don’t think the laws are unfair, but for-profits have really hijacked the business. They say that if a charity has a contract with a for-profit entity, the charity has to have a ‘controlling interest,’ but the reality is that this is not the case.”
From 4,300 charities, the GAO concluded that on average only 35 percent of revenue raised from a car auction actually reached the end charity. Many charities reported seeing less than 10 percent of the revenue.
Patrick Walsh, senior vice president of business development for Insurance Auto Auctions, a for-profit car auction company, said there should be changes made to the tax-code to deal with “over corrections” made in 2005.
Walsh knew of the GAO study but said, “I can tell you that the charities we work with receive well north of 70 percent of the funds raised.” But, some organizations receive less revenue based on the services they need. If a nonprofit wants to invest money into marketing their auto donation program, they may receive a smaller percentage of what is generated.
“When they changed the law in 2005 they did a lot of good things like installing measures to reduce fraud and increase visibility,” Walsh said. “We fully support these measure, but we’ve seen unintended consequences as auto donations have dropped 30-40 percent.”
Although Walsh won’t be writing into the IRS for public comment, his company headquartered in Westchester, Ill., along with several other nonprofits including the American Lung Association has helped draft legislation to increase the threshold for a fair-market deduction.
Known as HR 860 (S 110), the legislation intends to “set forth revised acknowledgment requirements for vehicles valued at $2,500 or less and vehicles valued at more than $2,500.”
The legislation is currently in the House Committee on Ways and Means. Introduced on March 1, 2011 by Representative John Larson, R-CT, the bill has 174 co-sponsors, 72 Republicans and 92 Democrats.
“We are not looking to turn the clock back, but want to apply some judgment that makes sense,” said Walsh. “We feel raising it to $2,500 is an appropriate adjustment to an over correction.”
Menzies thought the most comments would come from these for-profit car auctioneers looking to capitalize on more people auctioning cars for a fair-market value.
“I don’t think the current law is unfair,” Menzies. “If people have nice cars, they should be able to get full-value even if the car is not used for an organization’s mission. Unfortunately though I don’t think we will ever see for-profit auctioneers banned from the sector. They are just so prevalent in other areas of the nonprofit sector, like direct mail.”