How to Donate a Vehicle Without Leading to IRS Problems

Over the past few years the IRS has cracked down on vehicle donations, but you should not let the reports of new IRS regulations stop you from making a charitable contribution. Earlier this week the Roni Deutch Tax Center - Tax Help Blog posted a great new article explaining how to donate a vehicle to charity without leading to IRS problems. You can find a section of the blog entry below, or click here for the full text.

Selecting an Organization

One of the most important steps in donating a vehicle is choosing a qualified charity. Although you might want to help a specific organization, in order to claim the charitable contribution deduction you will need to donate your vehicle to an organization that is qualified by the IRS. You can use IRS Publication 78 to find a qualified charity, or just ask the organization if they have proof of their tax-exempt status.

Fair Market Value

Before you donate the vehicle, you will need to determine the fair market value of your car for tax purposes. Be sure to document the condition of your vehicle, and get estimates from a handful of sources. Make sure you find substantial proof to support the value you assign to the car.

Deduction Amount

The deduction you can claim for your vehicle depends on what the charity does with it. If the organization auctions off the car, then you should claim the amount that the vehicle was sold for. However, in some cases charities will give away vehicles to low-income families, or sell it for significantly less than fair market value. In these instances, the IRS will allow you to deduct the fair market value of the vehicle, but you will need proof of both how you determined the value, and proof that the charity sold the vehicle for less than fair market value.

Use your vacation to do something good -- and get a tax write-off

The tragic Gulf oil spill is inspiring people to use their vacation time for good. I applaud these incredibly dedicated people who take the time off work, often traveling long distances, to help those who are in need. Even better, WalletPop.com has an article reminding us that these charitable individuals may be eligible for a tax deduction.

Of course, time volunteered is never deductible, travel and out-of-pocket expenses are. According to the article, to qualify for the deduction, your expenses must be:

1. not otherwise reimbursed;
2. directly connected with the services you're performing;
3. expenses you had only because of the services you performed; and
4. not personal, living, or family expenses.

If your summer vacation finds you helping to clean up wildlife in the Gulf, keep track of your travel expenses, this includes gas and maintenance of your vehicle, any parking fees or tolls you pay if you are within driving distance. You are allowed to claim reasonable travel expenses including air or bus fare, reasonable hotel and meal expenses, and taxi rides for getting to and from the volunteering site.

Remember, you’ll have to itemize your deductions to claim these valuable tax breaks, so make sure you understand your own tax situation to make sure you’ll be eligible.

Of course the main reason to get involved in the cleanup is to help others. But that doesn’t mean you can’t enjoy the tax breaks your generosity gives you.

Read the entire article here.

Tax Court Denies Charitable Deduction for $200 Cash Given to Panhandlers & $29k of Stuff Donated to Goodwill

Last Thursday, the US Tax Court ruled on Roberts v. Commissioner and denied a taxpayer’s attempt to claim a charitable deduction for $200 cash given to panhandlers and $28,655 of household items donated to Goodwill. You can check out a section of the opinion below, courtesy of the Tax Prof, or click here for the full PDF.

For 2005 petitioner claimed, on Schedule A, Itemized Deductions, a $200 cash charitable contribution, which he described as donations to panhandlers and the Salvation Army, and $28,655 of noncash charitable contributions. Included with his 2005 Federal income tax return was a self-prepared substitute Form 8283, Noncash Charitable Contributions, in which petitioner claims to have contributed more than 450 items of property consisting primarily of used clothing, but also including, among other things, towels, bedsheets, books, costume jewelry, children's toys, and glass lamps. Petitioner's descriptions of the items of property allegedly contributed to charity are vague and include self-assigned estimates of their values. Petitioner also provided copies of five receipts from Goodwill Industries (Goodwill) dated January 9, April 13, May 18, September 16, and October 1, 2005. Only one of the receipts bears a signature indicating that the donated items were received by Goodwill, and the receipts provide nothing more than vague references to the items allegedly donated; e.g., "men's boots", "ladies' clothes", "men's clothes", "boy's clothes", "women's clothing", and "4 bags of clothes". ...

With respect to the claimed $200 of cash contributions to charity, petitioner has failed to offer anything more than his self-serving testimony that he made various donations to panhandlers and the Salvation Army. ... Petitioner did not offer any canceled checks, receipts, or other reliable evidence to substantiate the claimed $200 of cash contributions to charity. Accordingly, we sustain respondent's determination to deny to petitioner a deduction for the claimed $200 of cash contributions to charity.

[P]etitioner has neither attached to his Federal income tax return nor proffered an appraisal summary to establish the values of the items allegedly donated. ... [T]he copies of the five receipts from Goodwill neither reconcile with petitioner's substitute Form 8283 nor provide anything more than vague descriptions of the items donated. Accordingly, we find that petitioner has failed to establish, by proper and adequate substantiation, entitlement to a charitable contribution deduction for the noncash items he claims to have donated to charity. We therefore sustain respondent's determination to deny petitioner a deduction for noncash contributions to charity.

Illinois Hospital Loses Tax-Exempt Status for Not Being Charitable Enough

From Law.com:

In a decision that could having a chilling effect on nonprofit hospitals, the Illinois Supreme Court on Thursday ruled that a Catholic hospital wasn't charitable enough, so it took away the hospital's tax-exempt status.

The ruling upheld a state tax review board's 2003 decision to end Provena Covenant Medical Center's tax-exempt status after the state learned that the center's charity care equaled less than 1 percent of revenue. Now, the hospital is liable for a multimillion-dollar property tax bill.

The Illinois decision comes as lawmakers in that state and in the nation's capital, as well as the Internal Revenue Service, are watching hospitals more closely with regard to their charitable giving. The IRS is scrutinizing hospitals' year-end tax filings, while lawmakers are talking about legislation to mandate a certain minimum level of charity care to justify tax-exempt status.

The Illinois ruling could bolster those efforts. "My biggest concern is that this will really drive more challenges to property tax exemption status for hospitals and other charities nationally at a time when they really can't afford it," said Elizabeth Mills, senior counsel to the Chicago office of Proskauer Rose.

Mills questioned the court's finding that the hospital wasn't charitable enough, noting that Illinois law sets no particular level of charity care linked to tax-exempt status.

In its decision, the high court concluded that Provena had failed to show "that it dispensed charity to all who needed it and applied for it." State lawyers had argued that only 302 patients at Provena received free or discounted care out of more than 100,000 admissions in 2002. Those patients cost the hospital a mere $831,724, or about 0.7 percent of its $113 million in revenue.

Interesting Opinion on Charitable Contributions

The New York Times posted an interesting new opinion on charitable contributions by Ray D. Maddiff. Below is a snippet of the opinion, but you can check out the full text at: Dog Eat Your Taxes?

“The latest news from the Palace, that Leona Helmsley left instructions that her charitable bequest of as much as $8 billion be used for the care and welfare of dogs, rubs our noses in the tax deduction for charitable gifts and its common vehicle, the perpetual private foundation. Together these provide a mechanism by which American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.

The charitable deduction enables people to donate as much of their assets as they like for charitable purposes without paying a tax. While some choose to contribute to broad public goals, the law does not require it. In recent years, charitable status has been recognized for organizations with purposes as idiosyncratic as promoting excellence in quilting and educating the public about Huey military aircraft. Indeed, Mrs. Helmsley might have limited her beneficence to the Maltese breed of dogs she favored, and that, too, would have been allowed as a “charitable” purpose.

If this were only a matter of Leona Helmsley wasting her own money, no one would need to care. But she is wasting ours too.

The charitable deduction constitutes a subsidy from the federal government. The government, in effect, makes itself a partner in every charitable bequest. In Mrs. Helmsley’s case, given that her fortune warranted an estate tax rate of 45 percent, her $8 billion donation for dogs is really a gift of $4.4 billion from her and $3.6 billion from you and me."

Top 50 Charitable Americans

Philanthropy.com has compiled a list of the top 50 charitable Americans for 2007. The article lists the 50 people who gave the most to charity last year, and includes the amount they have committed to donating. Those who made the list include: William Barron Hilton, Michael R. Bloomberg, Oprah Winfrey, and 47 other. Check out the full list at Philanthropy.com.

More Franchises Seeking Charitable Causes

According to the Wall Street Journal, more franchise businesses are adding a new element to franchise owners, a designated charitable cause. The tactic known as cause marketing is a process where businesses link themselves to a special charity or social causes and raise funds through promotions and sales. The tactic isn’t new to big corporations like Nike, Home Depot, etc, but it’s beginning to gain popularity in franchise businesses. Having a designated charitable cause allows companies to unite franchisees in various markets, convey a consistent image, and boost their profiles and bottom lines. "It's increasingly popular among franchise organizations who are trying to penetrate local markets, who are trying to bond with their franchisees and who are trying to help franchisees to attract and retain employees," says David Hessekiel, president of Cause Marketing Forum Inc.

Tax Law Changes Cost Charities Millions

Charities are seeing great drops in the number of cars being donated because of tax law changes made last year. For more details check out this article on Examiner.com.

Charitable Donation Changes to Remember

The IRS has posted an article on their website with detailed guidelines on making charitable donations this year. There were several tax law changes made last year with the passing of the Pension Protection Act. The new law gives the government and taxpayers greater certainty in determining what can be deducted as a charitable contribution, and also provides retired taxpayers a new way to donate to charity. For more information on the Pension Protection Act check out this article on the IRS’s website.

Payroll Deduction Contributions

With the Pension Protection Act of 2006 changing the record keeping requirements for charitable contributions, many taxpayers are wondering how to deduct contributions taken directly out of their paycheck without losing their tax credits. The Internal Revenue Service addressed this issue by announcing that "the taxpayer should retain a pay stub, Form W-2, or other document furnished by the employer that shows the total amount withheld for payment to charity, along with the pledge card that shows the name of the charity." For more details visit the article on their IRS’s website by clicking here.

Advice on Charitable Donations

‘Tis the season to give! For advice on making a charitable contribution check out this article on MarketWatch.com.