Laurice:
Hello, I'm Laurice Ghougasian
Phil:
I'm Philip Smith. We I work for the IRS Exempt Organizations Office
Accepting car and truck donations has become a common way for charities to raise funds. Many charities accept donations of used cars and trucks as part of their fundraising activities.
Over the years, the rules for how much a donor can deduct and the reporting and recordkeeping requirements have changed for both the charity and the donor. It's important that charities know these rules for themselves and for their donors to protect their tax exempt status, and avoid penalties or lost charitable deductions.
The reporting requirements are based on what the charity does with the vehicle, and the vehicle's claimed value.
Laurice:
If someone contributes a car or truck and claims that the value of the vehicle is more than $500, the charity must give a written acknowledgement to the donor at the time.
This acknowledgement must include information on what the charity intends to do with the vehicle, the donor's name and taxpayer identification number, the vehicle identification number, and the date of the contribution.
The acknowledgement also must include one of the following statements, based on what, if anything, the donor received in return for the vehicle:
no goods or services were provided in return
or
a description and good faith estimate of the value of goods or services the charity provided in return
or
a statement that goods or service provided by the charity consisted entirely of intangible religious benefits.
Phil:
If the charity sells the donated vehicle for more than $500 and uses the money exclusively to fund its charitable operations, the acknowledgement also has to include a statement confirming that the vehicle was sold in an arm's length transaction between unrelated parties; the date of the sale; the gross proceeds received from the sale and a statement that the donor's deduction may not exceed the gross proceeds from the sale.
A charity has the option of using the vehicle to conduct its charitable programs. This is known as "significant intervening use."
If it does this, the acknowledgement has to include a statement certifying that the charity intends to make a significant intervening use of the donated vehicle; a detailed statement of the intended use; a detailed statement of the duration of that use, and a certification that the vehicle will not be sold before completion of the use.
To find out the qualifications and some examples for significant intervening use, see IRS Publication 4302.
Laurice:
A third option is when the charity intends to make material improvements to the donated vehicle. In addition to all the information we've talked about, the acknowledgement has to add a statement that the charity intends to make a material improvement to the donated vehicle, a detailed description of the intended improvement, and a certification that the vehicle will not be sold before completion of the improvement.
A final option is that the charity intends to give the vehicle to a needy person.
In that case, the acknowledgement must add a statement that the charity intends to give or sell the vehicle to that person at a price significantly below fair market value, and that the gift or sale is in direct furtherance of the charity's charitable purpose of relieving the poor and distressed who need transportation.
The timing of when the charity has to provide the acknowledgement to the donor also depends on how the charity uses the vehicle. If it sells the vehicle, the charity must give the acknowledgement within 30 days of the sale.
If the charity makes significant intervening use, improves the vehicle or sells or gives it to a needy person, the acknowledgement is due within 30 days of the contribution date.
Phil:
The charity has to report all of the information in the acknowledgement to the IRS by filing Form 1098-C. The filing due date is February 28 of the year after the year it provides the acknowledgement to the donor. That date is moved to March 31 for electronic filers. So, if the charity gives the acknowledgment in 2012, it must send the Form 1098 report to the IRS by February 28 or March 31, 2013.
The charity can also send Form 1098-C to the donor as the acknowledgement, or use its own form.
The IRS has two publications that explain the rules for car donations, determining the fair market value for donors and the written acknowledgements for donations of $500 or less. They are…Publication 4302, A Charity's Guide to Car Donations and Publication 4303, A Donor's Guide to Car Donations
Both are available on IRS.gov under the Forms & Pubs section.