oversight

Vehicle Donations: Benefits to Charities and Donors, but Limited Program Oversight

Published by the Government Accountability Office on 2003-11-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Committee on Finance,
                U.S. Senate



November 2003
                VEHICLE
                DONATIONS
                Benefits to Charities
                and Donors, but
                Limited Program
                Oversight




                On December 19, 2003, the PDF file was revised to include a Web link to
                an audio version of a radio advertisement discussed in the report. The link
                                 to www.gao.gov was added to page 11.




GAO-04-73
                a
Contents


Letter                                                                                  1
               Results in Brief                                                         2
               Background                                                               4
               Few Charities Reported Having Vehicle Donation Programs, and
                 Small Percentage of Taxpayers Claim Deductions for Donated
                 Vehicles                                                               7
               Vehicle Donation Programs Varied for the Charities We Reviewed,
                 but Most Used Third-Party Agents                                     10
               Charities Receive Less than Donors Claimed as the Value of the
                 Vehicle for the 54 Donations We Reviewed                             15
               IRS and States Compliance Activities Directed at Donated Vehicle
                 Issues Have Identified Cases of Noncompliance                        20
               Guidance Is Available to Donors and Charities Regarding Vehicle
                 Donations                                                            25
               Conclusion                                                             27
               Recommendations for Executive Action                                   28
               Agency Comments and Our Evaluation                                     28

Appendix I     Objectives, Scope, and Methodology                                     30



Appendix II    Sample Claims of Vehicle Donation Advertisements                       34



Appendix III   Selected Vehicle Donations Tracked from Donation
               to Taxpayer Claim for Charitable Deduction                             37



Appendix IV    Vehicle Donation Guidance                                              39



Appendix V     Comments from the Internal Revenue Service                             41



Appendix VI    Staff Acknowledgments                                                  43
               Acknowledgments                                                        43




               Page i                                          GAO-04-73 Vehicle Donation
Tables
          Table 1: Examples of Organizations That Do or Do Not Qualify to
                   Receive Deductible Charitable Contributions                                       4
          Table 2: Data Sources Used to Address Objectives                                          30
          Table 3: Vehicle Donation Claims Related to Tax Deductions (by
                   medium)                                                                          36
          Table 4: Vehicle Donations Tracked from Donation to Taxpayer
                   Claim for Charitable Deduction—54 Vehicles                                       37
          Table 5: Sources of Guidance in Making Vehicle Donation
                   Decisions                                                                        39


Figures
          Figure 1: States That Require Registration of Charitable Soliciting
                   Organizations, Including the District of Columbia                                 6
          Figure 2: Number of Sampled Charities Starting Vehicle Donation
                   Programs from 1978-2002                                                           8
          Figure 3: Percentage of Dollar Amount of Deductions for Noncash
                   Charitable Contributions over $500 by Type of
                   Contributions, Tax Year 2000                                                      9
          Figure 4: Vehicle Donation Process                                                        10
          Figure 5: Example of Vehicle Solicitation on a Truck                                      12
          Figure 6: Some Charities Accept Vehicles in Poor Condition                                13
          Figure 7: Example of a Vehicle Donation                                                   16
          Figure 8: Charity Proceeds as a Percent of Donor Claims in 54
                   Selected Vehicle Donations                                                       18
          Figure 9: Most Common Claims in Newspaper, Radio, and Internet
                   Advertisements Reviewed                                                          34
          Figure 10: Transcript of Actual Radio Advertisement for Vehicle
                   Donations                                                                        36




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          Page ii                                                     GAO-04-73 Vehicle Donation
United States General Accounting Office
Washington, DC 20548




                                   November 14, 2003

                                   The Honorable Charles Grassley
                                   Chairman
                                   The Honorable Max Baucus
                                   Ranking Minority Member
                                   Committee on Finance
                                   United States Senate

                                   Some charities are turning to vehicle donation programs as a means for
                                   raising funds. While these donations create an important source of
                                   revenue for a number of charities, questions have arisen regarding the role
                                   third-party agents1 play in the vehicle donation process, as well as the
                                   amount of proceeds that are actually received by charities from vehicle
                                   donations. Others have asked whether taxpayers know enough about
                                   vehicle donation programs to make informed decisions about donating
                                   their vehicles, and are claiming appropriate tax deductions.

                                   Given these questions, this report expands on our preliminary
                                   observations on vehicle donation programs in our April 1, 2003, testimony
                                   before the Senate Finance Committee2 and discusses (1) the number of
                                   charities with vehicle donation programs and the number of taxpayers
                                   claiming deductions for vehicle donations; (2) the vehicle donation
                                   process; (3) proceeds received by charities from vehicle donations
                                   compared to what donors claim for vehicle donation deductions;
                                   (4) Internal Revenue Service (IRS) and state compliance activities directed
                                   at vehicle donations, and the results of these activities; and (5) guidance
                                   available to taxpayers and charities to help them make informed decisions
                                   regarding vehicle donations.

                                   To satisfy these objectives, we relied on two sources of nationally
                                   representative information and several anecdotal sources of information.
                                   To determine the number of charities that have vehicle donation



                                   1
                                    Third-party agents refer to commercial fund-raisers, vendors, and not-for-profit
                                   organizations that solicit and perform vehicle donation processing activities on behalf of
                                   charities.
                                   2
                                   U.S. General Accounting Office, Vehicle Donations: Taxpayer Considerations When
                                   Donating Vehicles to Charities, GAO-03-608T (Washington, D.C.: Apr. 2003).



                                   Page 1                                                        GAO-04-73 Vehicle Donation
                   programs, we conducted a national telephone survey of a statistically
                   representative sample of charities. Second, to determine how many
                   taxpayers claimed vehicle donation deductions, we analyzed a statistically
                   representative sample of tax year 2000 tax returns (the latest data then
                   available). We also obtained anecdotal information on compliance
                   activities from officials at the IRS and 11 state attorneys general and
                   secretary of state offices, and information on vehicle donation operations
                   from a pool of 65 charities, six third-party agents, and related interest
                   groups. Finally, we tracked a judgmental sample of 54 donated vehicles to
                   compare the amount of proceeds charities received from vehicle sales and
                   the amount claimed as deductions on donors’ tax returns. Appendix I
                   contains a detailed description of our objectives, scope, and methodology.
                   Our work was conducted between October 2002 and October 2003 in
                   accordance with generally accepted government auditing standards.


                   An estimated 4,300 U.S. charities with an annual revenue of $100,000 or
Results in Brief   more are operating vehicle donation programs, or less than 3 percent of
                   the 157,500 charities with income at or exceeding this level. Based on our
                   estimates, tax deductions for donated vehicles were claimed on about
                   733,000 tax returns for tax year 2000, or an estimated 0.6 percent of the
                   129 million individual returns filed that year. These deductions lowered
                   taxpayers’ income tax liability by an estimated $654 million.

                   The vehicle donation process generally involves four steps: (1) advertising
                   and fielding donors telephone calls regarding donating their vehicles;
                   (2) taking possession of vehicles, usually by tow truck; (3) disposing of
                   vehicles, most often through auto auctions; and (4) distributing the
                   proceeds from vehicle sales between charities and organizations involved
                   in the process. Some charities operate their vehicle donation programs in-
                   house; however, most of the charities we interviewed relied on third-party
                   agents to conduct some or all components of their programs for a share of
                   the proceeds from vehicle sales.

                   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 54 vehicle donations we tracked. Based on discussions
                   with charities and third-party agents, we identified two factors that
                   contributed to this difference. First, donated vehicles are often sold at
                   auctions for wholesale prices rather than at the price a donor might expect
                   if selling the vehicle to a private party. Second, vehicle processing and
                   fund-raising costs are subtracted from gross vehicle sales revenue, further
                   reducing the proceeds charities receive from vehicle sales. We could not


                   Page 2                                            GAO-04-73 Vehicle Donation
determine whether individuals claiming deductions for donated vehicles
accurately assessed the fair market value of their vehicle due to a lack of
available data on the condition of the vehicles donated.

IRS and states compliance activities directed at donated vehicles issues
have been limited. IRS has one compliance program that generates audit
leads on taxpayers that may have overstated their tax deductions for
noncash contributions, which include vehicle donations, but due to higher
priority compliance demands, IRS has not audited any of the leads during
the last 2 fiscal years. Also, IRS data on its returns processing procedures
for disallowing deductions for inappropriately claimed noncash
contributions on returns with relatively high deductions show that few
deductions are disallowed. The IRS may be able to assess compliance
problems associated with noncash deductions, including donated vehicles,
with information it obtains from audits being conducted as part of its
National Research Program. An IRS donated property task force
developed recommendations, which could lead to better oversight of
charities’ donation programs, such as recording and retaining charities’
donated property disposal forms to determine whether charities filed the
forms and whether the forms are accurate. In addition, several of the
officials we contacted in 11 states said they uncovered problems with
vehicle donation programs, including an instance in which an organization
posed as a charity to receive donations, a third-party agent inappropriately
kept vehicle donation proceeds, and individuals solicited vehicle
donations for fictitious charities.

The IRS, state officials, and other organizations we contacted have
provided guidance to taxpayers and charities to help them donate or
accept vehicles. Guidance to taxpayers has included such things as helping
them identify legitimate, well-run charities; avoid personal liability for
their donated vehicles; claim appropriate tax deductions; and protect
themselves from fraudulent marketing solicitations. Guidance to charities
helps charities select and manage professional fund-raisers and suggested
documentation to maintain for donated vehicles.

We are recommending that IRS assess the merits of its program for
generating audit leads on taxpayers that may have overstated their
noncash charitable contributions, and whether forms charities submit
when disposing of donated property should be recorded and retained. IRS
agreed with our recommendations and stated that decisions on actions to
be taken will depend on the results of its review of the level of
noncompliance in reporting noncash contributions.



Page 3                                              GAO-04-73 Vehicle Donation
             The tax code allows individuals and businesses to make noncash
Background   contributions (e.g., vehicles, paintings, used clothing, and household
             goods) to qualifying charities by allowing taxpayers to claim deductions
             for their donations on their tax returns. However, not all organizations are
             granted nonprofit or tax-exempt status by the IRS that qualifies taxpayers
             for tax deductions for items donated to them. Table 1 provides examples
             of organizations that do and do not qualify donors for noncash deductions,
             including vehicle donations.

             Table 1: Examples of Organizations That Do or Do Not Qualify to Receive
             Deductible Charitable Contributions

              Qualified for tax deductions                                     Not qualified for tax deductions
              Charitable organizations (e.g. religious,                        Civic leagues, social welfare organizations,
              educational, scientific, charitable literary,                    and local employee associations
              cruelty prevention, and some amateur                             Political groups or candidates
              sports competitions)
                                                                               Labor, agricultural, or horticultural
              Federal, state, and local governments                            organizations
              Domestic fraternal societies and war                             Social and recreational clubs
              veterans’ groups
                                                                               Farmer’s Cooperative associations
              Certain nonprofit cemetery groups
              Childcare organizations
             Source: Adapted from IRS Publication 557 Tax Exempt Status for Your Organization, July 2001.



             IRS guidance instructs donors to establish the value for their donation
             based on its “fair market value” for donated vehicles, that is, what the item
             would sell for on the market, taking into account its condition, including
             mileage in the case of vehicle donations. As is the case for all noncash
             contributions, the IRS does not require donors to obtain an independent
             appraisal for a vehicle’s value unless they claim over $5,000 for the
             donated property. IRS guidance suggests that donors use used car guides,
             comparable sales, and other sources to assist in establishing the fair
             market value for their donated vehicles.

             Regulatory oversight over charities and their vehicle donation programs is
             diffused, shared between the IRS and state agencies. The IRS decides
             which charities are granted nonprofit status and whether the charity meets
             tax-exempt requirements and complies with federal laws. Many states




             Page 4                                                                                 GAO-04-73 Vehicle Donation
require charities soliciting within the states to register3 with the state
attorney general’s office or the secretary of state’s office. Figure 1 shows
the 39 states and the District of Columbia that require charitable
organizations to register with state charity offices. In general, states
prohibit unregistered organizations from soliciting for donations in their
state. Some state agencies also review vehicle donation advertisements in
response to consumer complaints, or when they discover a charity is
soliciting for donations in their state without being registered.




3
 Registration of charitable organizations may involve providing information such as the
name of the organization and charitable purpose; office locations; information on key
charity officials; and the general purpose for which the solicited contributions are to be
used.




Page 5                                                         GAO-04-73 Vehicle Donation
Figure 1: States That Require Registration of Charitable Soliciting Organizations, Including the District of Columbia




                                                             HI




                                                                                  States that require charities to register (including District of Columbia).

                                                                                  States that do not require charities to register.

Source: GAO adaptation of National Association of State Charity Official's map.



                                                                   In addition to oversight by the IRS and state agencies, some private sector
                                                                   organizations develop standards to promote ethical charitable practices
                                                                   and collect information on charitable organizations. Charity “watchdog”
                                                                   organizations, such as the Better Business Bureau’s Wise Giving Alliance,
                                                                   Council of Better Business Bureaus, American Institute of Philanthropy,
                                                                   Association of Fund-Raising Professionals, and the Independent Sector,
                                                                   provide insight to the public on various fund-raising activities. These
                                                                   organizations collect information on charitable organizations and develop



                                                                   Page 6                                                                                 GAO-04-73 Vehicle Donation
                          standards to promote ethical practices. They disseminate these standards
                          in an effort to “inspire public confidence.” These standards include the
                          voluntary disclosure of an organization’s activities, finances, fundraising
                          practices, and governance.


                          Based on our national survey of charities, few charities reported having a
Few Charities             vehicle donation program. Correspondingly, a small percentage of
Reported Having           taxpayers claimed tax deductions for donated vehicles.
Vehicle Donation
Programs, and Small
Percentage of
Taxpayers Claim
Deductions for
Donated Vehicles

Few Charities Reported    Despite frequent advertisements soliciting vehicle donations to charities,
Having Vehicle Donation   few charities reported having vehicle donation programs. Of U.S. charities
Programs                  with revenues of $100,000 or more, we estimate that 2.7 percent, or about
                          4,300 charities nationwide, have vehicle donation programs.4 This
                          projection is based on our survey of 600 charities, of which 16 reported
                          having a vehicle donation program.

                          While the small number of charities with vehicle donation programs does
                          not allow us to make national estimates, we found that most of the
                          16 vehicle donation programs identified by the national survey were
                          relatively new programs, as shown in figure 2. Only 4 of the 16 charities
                          had vehicle donation programs prior to 1998.




                          4
                           We surveyed a statistically representative sample of charities from the 2002 core data set
                          of the National Center for Charitable Statistics, of approximately 157,500 501(c)(3)
                          organizations with incomes of $100,000 or higher. The 95 percent confidence interval for
                          the number of charities with vehicle donation programs is between 1.5 to 4.3 percent, or
                          between 2,400 to 6,800 charities.




                          Page 7                                                        GAO-04-73 Vehicle Donation
                         Figure 2: Number of Sampled Charities Starting Vehicle Donation Programs from
                         1978-2002

                         Number of charities
                         4




                         3




                         2




                         1




                         0
                             1978         1981               1984-1990                      1993            1996           1999                    2002
                             Year
                         Source: GAO summary of data from 16 charities in national survey of charities with annual revenues of $100,000 or more.




Small Percentage of      Our analysis of IRS tax return data for tax year 2000 showed that a small
Taxpayers Claimed        percentage of taxpayers claimed deductions for vehicle donations. We
Deductions for Vehicle   reviewed a representative sample of taxpayer returns5 that claimed
                         noncash contributions of over $500 for tax year 2000. We found that of the
Donations                129 million returns filed that year, an estimated 0.6 percent,6 or
                         733,000 returns, contained tax deductions for vehicle donations. The
                         733,000 returns represented about 17 percent7 of the 4.4 million returns


                         5
                          We used IRS’s tax year 2000 Statistics of Income (SOI) file to select our statistically
                         representative sample of returns.
                         6
                          The 95 percent confidence interval for number of returns filed is plus or minus 0.4 percent,
                         or between 0.2 and 1 percent.
                         7
                          The 95 percent confidence interval for noncash contribution deductions over $500 is plus
                         or minus 10.8 percent, or between 6 and 28 percent.




                         Page 8                                                                                    GAO-04-73 Vehicle Donation
filed with noncash contribution deductions over $500. We estimate that
vehicle donation deductions lowered taxpayers’ income tax liability by an
estimated $654 million.8 The dollar amount of vehicle donation deductions
totaled about 6 percent of the noncash contributions claimed,9 while
stocks and thrift store donations accounted for most of the deductions for
noncash charitable contributions over $500, as shown in figure 3.

Figure 3: Percentage of Dollar Amount of Deductions for Noncash Charitable
Contributions over $500 by Type of Contributions, Tax Year 2000



                                                                  6%
                                                                  Vehicle donation
                                                                  9%
                                                                  Property donation


                                 •
                                           •



               63%                        23% •                   Thrift store donation
                •




                                                                  Stock donation
Source: GAO analysis of a random sample of returns from IRS tax year 2000 Statistics of Income file.

Note: Totals do not add to 100% due to rounding. Sampling errors associated with these estimates
are large. The 95 percent confidence intervals are: stock donation 39-86%, thrift store donation 8-
38%; property donation 3-19%, and vehicle donation 2-15%.




8
 The 95 percent confidence interval for the $654 million estimate is plus or minus
$480 million, or between $174 million and $1.13 billion.
9
 This value may underestimate the taxes foregone because only vehicles valued over
$500 are included. About 16 million taxpayers claimed an estimated $5.5 billion in noncash
contributions of $500 or less. Some of these taxpayers may have claimed tax deductions for
vehicle donations, but they were not required to list these transactions on their returns.




Page 9                                                                                    GAO-04-73 Vehicle Donation
                                                                   While few taxpayers claim tax deductions for donated vehicles, 2 charities
                                                                   we contacted conducted surveys10 of their donors and found that the
                                                                   ability to claim a tax deduction was one of the important reasons
                                                                   individuals donated their vehicles to charity. Other important reasons
                                                                   cited in the surveys for donating vehicles were to help a charitable cause
                                                                   and to easily dispose of an unwanted vehicle.


                                                                   The vehicle donation process, for the charities we reviewed generally
Vehicle Donation                                                   consisted of four steps: (1) solicitation/donor contact, (2) vehicle pick-up,
Programs Varied for                                                (3) vehicle sale, and (4) distribution of proceeds. Forty-five of the
                                                                   65 charities we interviewed reported using third-party agents for some or
the Charities We                                                   all of these steps rather than relying on in-house resources, and some had
Reviewed, but Most                                                 arrangements with more than one agent. About half of the 45 charities
Used Third-Party                                                   used third-party agents to run the entire program, while other charities
                                                                   used a third-party agent for only certain functions. The vehicle donation
Agents                                                             process is depicted in figure 4.


Figure 4: Vehicle Donation Process


                                 Step 1                                                   Step 2               Step 3                           Step 4
                     Solicitation / donor contract                                     Vehicle pickup        Vehicle sold                 Proceeds distributed



                                                    Charity
                                                                                       Vehicle pick up
                                                                                                                            Proceeds
                                                                                                                                               Charity
                                                                                                              Vehicle       distributed
                                                                                                               sold                             3rd party
                                                                                                                                                 agent
                                                  3rd party
                                                   agent
    Individual auto donors
      replies to charity or
   3rd party advertisement

Source: GAO depiction of information obtained from charities and third-party agents.




                                                                   10
                                                                    Two charities shared voluntary feedback provided by vehicle donors. Over 3,000 donors
                                                                   responded in one survey and about 400 responded in the other. We did not review the
                                                                   methodology for the surveys, and consider the results to be illustrative.




                                                                   Page 10                                                      GAO-04-73 Vehicle Donation
Step 1 – Solicitation/donor contact. The vehicle donation process
generally begins with solicitations for donated vehicles through
advertisements. Vehicle donations may be solicited directly by charities,
third-party agents, or both, depending on the agreement between the
charities and third-party agents. Of the 45 charities we interviewed that
discussed their advertising practices, 26 reported that advertising was
handled solely by the charity. Some third-party agents solicited donated
vehicles for several charities using a common advertisement. Some of the
most common mediums for vehicle donation advertisements include the
radio, newspapers, and the Internet.11 (For Web version of this report, click
here (www.gao.gov/media/audio/donatecar.mp3) to hear a radio vehicle
donation advertisement, or see app. II for the transcript.) Vehicle
donations are also solicited through advertisements on billboards, truck
banners (see fig. 5), and television, as well as in newsletters and even on
small paper bags.




11
  We reviewed a nonprojectable sample of 147 radio, newspaper, and Internet
advertisements for donated vehicle programs to determine the types of claims that
charities and third parties made in soliciting for used vehicles. Appendix II provides
information on the results of our analysis.




Page 11                                                        GAO-04-73 Vehicle Donation
Figure 5: Example of Vehicle Solicitation on a Truck




Source: GAO, courtesy of The Salvation Army, Pasadena, California.



Also during this step, donors initiate contact with the charity and or third-
party agent to donate their vehicle. Either charities or third-party agents
may take the initial call from a potential donor, asking the donor questions
that may be used to screen vehicles, such as the vehicle’s make, year, and
condition, and if the donor has the title to the vehicle. Twenty-four of the
65 charities we interviewed reported that they accepted donor calls in-
house, while 23 said that they used third-party agents to accept calls or
shared this responsibility.12 Some charities or their agents limited the
vehicles they accepted to those they anticipated would produce a profit
after towing and other expenses. However, some charities reported
accepting vehicles regardless of condition, as suggested in figure 6. One
charity official stated that accepting vehicles with little value was a way of
generating goodwill for future donations.



12
  We did not obtain information on donor contacts with the charity or third-party agents for
the remaining 18 charities.



Page 12                                                              GAO-04-73 Vehicle Donation
Figure 6: Some Charities Accept Vehicles in Poor Condition




Source: Article on charities that accept vehicles in poor condition, courtesy of Cartalk.com.



Step 2 – Vehicle pickup. After the donor makes the initial call to donate a
vehicle, arrangements are made to pick up the vehicle and deliver it to
wherever it will be stored until it is sold. Vehicles are generally towed,
according to a third-party agent, due to safety and liability concerns. A
majority of charities we contacted used third-party agents to pick up
vehicles. Once vehicles are picked up, donors are generally provided with
a receipt to document the donation for tax purposes. At this time, the
charity or third-party agent also obtains the title of the vehicle from the
donor.13 Some charities may provide the donor with state-required forms
(e.g., release of liability), or references for establishing the tax deductible
value of their donated vehicle (e.g., car guides or IRS guidance).




13
 IRS ruled in November 2002 (REV. 2002-67) that a donor transfer of a vehicle to a charity-
authorized agent can be treated as a transfer to the charity.




Page 13                                                                                         GAO-04-73 Vehicle Donation
Step 3 – Vehicle sale. Once collected, donated vehicles are most often
sold. Charities or third-party agents typically sell donated vehicles through
auctions to auto dealers, to the public, or to vehicle salvagers. The
majority of charities we contacted said that charities do not handle the
selling of vehicles themselves, but instead rely on a third-party agent.
Charities and third-party agents said that they generally sold donated
vehicles at auto auctions because (1) auctions allow high volume of auto
sales and (2) charities do not have the resources, such as staff, storage
space, or licenses required to sell vehicles themselves. Of the 65 charities
we interviewed, 43 charity officials said they sold all of their donated
vehicles, while officials at 16 charities said they used some donated
vehicles for clients, charity staff, or other purposes.14 For example,
1 charity official said that the charity used donated vehicles for student
training for a community college auto course.

Step 4 – Distribution of proceeds. After vehicles have been liquidated,
the proceeds are distributed. Charities with in-house vehicle donation
programs keep proceeds that remain after deducting costs associated
with processing the vehicles. When charities use third-party agents, the
financial agreement between the charity and the third-party agents
dictates the proceeds that the charity and fund-raiser will receive from
the sale.

In addition to the in-house and third-party arrangements, we identified
some variations in how vehicle donation programs operate. In one case,
a consortium of 14 charities jointly runs a vehicle donation program in
conjunction with a wrecking yard. The charities share in oversight of the
operations, such as inspecting donated vehicles and monitoring vehicle
donation reports. Donors can select 1 charity to receive the proceeds, or if
no charity is designated, proceeds are split among members of the
consortium equally. In another case, 1 large charity runs a national vehicle
donation program and serves regional offices as a third-party agent would,
charging its regions vehicle processing costs. However, some of the
charity’s affiliates choose other third-party agents that are not part of the
national program to run their program. Finally, in still another case, a large
charity runs a national program and serves charity affiliates, but also has a
nonprofit vehicle donation program for other smaller charities.




14
 We did not obtain information on donated vehicle disposals from the remaining
6 charities.




Page 14                                                    GAO-04-73 Vehicle Donation
                            Although proceeds from vehicle donations are a welcomed source of
Charities Receive           revenue, it was not a crucial source of income for the majority of the
Less than Donors            charities we reviewed. The proceeds charities received from vehicle
                            donations varied in the 54 cases we tracked, but were generally
Claimed as the Value        considerably less than the amount donors claimed on their tax returns for
of the Vehicle for the      the donated vehicles. Based on information from charities we spoke with,
54 Donations We             this difference is due in part to donated vehicles being often sold at auto
                            auctions at wholesale prices, and processing expenses and third-party fees
Reviewed                    reducing the amount of proceeds charities receive. We could not verify the
                            accuracy of taxpayer claims regarding the value of their donated vehicle.


Revenue to Charities from   The annual net proceeds from vehicle donations for 2002 reported by the
Vehicle Donations Varied    charities we interviewed ranged from as little as $1,000 for 2 vehicles
                            donated to a senior center, to over $8.8 million for 1 national charity that
                            received over 70,000 vehicles. The charities considered the proceeds
                            received as a welcomed, but rarely crucial source of income to sustain
                            their operations. Although the dollar amount received from vehicle
                            donations was over $1 million for several charities we spoke with, for
                            many, the revenue was a small share of total charity revenue. Charity
                            proceeds constituted less than 2 percent of the total annual budget for
                            15 of the 30 charities providing budget information; however, 2 of the
                            charities stated that vehicle donation proceeds provided 90 percent or
                            more of their annual revenue. Many of the charities we interviewed stated
                            that their vehicle donation program provided benefits beyond revenue by
                            providing an expanded donor base and name recognition for the charity.


Charity Proceeds Much       In the 54 specific vehicle donations we tracked, charity proceeds from
Less than Values Claimed    vehicle donations were much less than the value deducted by donors on
by Donors in Cases We       their tax returns. Based on charity and the third-party agent we contacted,
                            two factors contributed to this difference: (1) vehicles are often sold at
Tracked                     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
                            and (2) processing costs and fees are deducted from gross sales revenue,
                            further reducing charity proceeds.

                            Figure 7 illustrates the amount a charity received from 1 of the 54 vehicle
                            donations we tracked. In this case, a 1983 GMC Jimmy truck was donated
                            in 2001 to a charity whose vehicle donation program is operated by a third-
                            party agent. The gross sale price for the truck, which sold at an auction,
                            was $375. After deducting third-party and advertising expenses, net
                            proceeds from the vehicle sale totaled $62.00. This amount was split


                            Page 15                                            GAO-04-73 Vehicle Donation
50/50 between the third-party agent and charity, leaving the charity with
$31 from the vehicle donation. The taxpayer claimed a $2,400 tax
deduction for the donated vehicle on his/her tax return, based on the fair
market value of the vehicle listed in a used car guidebook. Appendix III
details the vehicle donation transactions for all 54 tracked cases.

Figure 7: Example of a Vehicle Donation

                                                              Gross sale
                           Vehicle
                                                                  price
                          donation
                                                              (wholesale)
                         1983 Truck
                                                          Truck sold at auction
                                                              for $375.00
        Proceeds
           after
        expenses                            Net
     After deducting                     proceeds
        $313.00 in                       to charity                         For tax
     fundraising and                                                      deduction
                                      Charity receives
    advertising costs,                                                  Donors claimed
                                        $31.00, half of
   the net proceeds of                                                   $2,400 on tax
                                      the net proceeds
                                                                             return
     $63.00 are split                   from donation
       with charity

Source: GAO.



Donated vehicles are often sold at auto auctions for lower prices than
what a seller might receive if the vehicle were sold to a private party. For
the 54 donated vehicles we tracked, sale prices for donated vehicles
ranged from 1 percent to 70 percent of donor tax deduction claims, and
over half of the cases were 10 percent or less of what donors’ claimed.
(See app. III) As one third-party agent stated, it is unfair to compare
auction sale prices for donated vehicles to deduction claims because most
donated vehicles are sold at auctions that cater predominantly to
wholesalers who then resell the vehicle at higher prices. Of the 59 charities
we contacted during our review that said they sell some or all donated
vehicles, 42 used auctions to dispose of the vehicles.

Another reason for the difference between the amounts deducted by
donors for donated vehicles and the proceeds charities receive from
vehicle sales is that sales proceeds are reduced by vehicle processing
costs, such as towing, advertising, program administration, and third-party
agent fees. California is the only state that collects data on the proceeds




Page 16                                                    GAO-04-73 Vehicle Donation
received by charities from vehicle donation programs.15 According to the
California Attorney General’s records, 145 charities using third-party
agents who had filed the required financial reports received approximately
$16 million, or 35 percent of the $45.8 million raised from reported
donated vehicle sales, during 2001. The amount of proceeds these charities
received in California ranged from 2 percent to 80 percent of proceeds
after third-party costs were deducted.

Taking both the lower sales price and deductions for processing costs into
account, the proceeds received by charities from donated vehicles were
much lower than the donor-claimed value for the vehicles in the
54 donated vehicle cases we tracked. Charities received between 0 and
54 percent of the value claimed by donors,16 with most receiving 5 percent
or less, as shown in figure 8. For some vehicle donation sales, charities
receive no proceeds after the costs of vehicle donations are deducted. For
6 of the 54 donated vehicles we tracked, the processing costs exceeded the
sales price for the vehicle (see app. III). For charities using third-party
agents, whether the loss is absorbed by the third-party agent or deducted
from charity proceeds from another higher value donated vehicle depends
on the agreement between the parties.




15
 See the state Web site for reporting requirements and list of charities and third-party
agents at www.caag.state.ca.us.
16
  About half of the vehicles we tracked came from 1 charity that does its own advertising,
which can be one of the highest cost elements of a vehicle donation program. Proceeds this
charity received from its third-party agent are higher because the cost of advertising is not
included.




Page 17                                                        GAO-04-73 Vehicle Donation
Figure 8: Charity Proceeds as a Percent of Donor Claims in 54 Selected Vehicle
Donations

Number of donations
30



25



20



15



10



 5



 0
     Less than        1-5            6-10            11-15    Over 15
     1 percent      percent         percent         percent   percent
Source: GAO analysis of 54 tracked vehicle donations.



Because third-party agents and other donated vehicle processing costs
vary among charities, comparing net vehicle donation proceeds between
charities can be misleading. One third-party agent said that programs
claiming a high percent of proceeds as profit are not including their full
costs, that is, they are only counting towing costs and may not include
space, advertising, or staff costs. Similarly, 1 charity managing its own
vehicle donation program stated that its proceeds may be lower than some
other charities, but they are accurately capturing the true program costs
while others may not be. Proceeds also differ based on different
agreements between charities and third-party agents for paying for the
third-party’s services. Of the 45 charities we contacted during our review
that reported using third-party agents, 20 said third parties were paid a
percentage of net proceeds for their vehicle donation services, many
splitting the net proceeds 50/50. Other charities reported paying third-
party agents a flat fee per vehicle17 or had some other arrangement, such as
paying for towing expenses incurred by third-party agents.



17
  Seven charities reported a flat fee arrangement, such as $45 or $50 per vehicle.




Page 18                                                             GAO-04-73 Vehicle Donation
                              A number of charities interviewed had little insight into vehicle donation
                              processing costs incurred by third-party agents because they received
                              limited, or in a few cases, no information on charges for vehicle donations.
                              Although most charities reported receiving an itemized list of revenue and
                              costs of donated vehicles from their third-party agents, the detail was not
                              always provided. For example, 1 charity received an itemized list of each
                              vehicle sold that listed all costs under “cost of sales” except for the third-
                              party fee. Another received an itemized list of sold vehicles with all costs
                              under “tow fees” and “expenses.” Thirteen of the charities we contacted
                              reported that they received a check from a third-party agent accepting
                              vehicles for the charity without their knowledge, and only 4 of the 13 said
                              that information on processing costs was provided. One well-known
                              charity with its own vehicle donation program stated that they repeatedly
                              contacted two third-party agents to stop them from accepting vehicles on
                              their behalf. The charity estimated that in 1 year one of the third parties
                              had deducted approximately $25,000 from proceeds to the charity over
                              what it would have cost the charity itself to process the donated vehicles.


Limited Data to Assess        An additional factor that may explain the difference between the proceeds
Taxpayer Accuracy in          charities receive from vehicle donation sales and what donors claim as the
Estimating Donated            value of the donated vehicle may be an inaccurate assessment by donors
                              of the vehicle’s value. Although many charities we spoke with said they try
Vehicle’s Fair Market Value   to limit vehicle acceptance to those in running condition, some charities
                              accept vehicles in poor condition. Charities stated that a number of the
                              vehicles donated are sold for scrap, and some said donor claims about
                              vehicle value might be inflated.

                              We could not determine in the 54 cases we tracked whether donors
                              appropriately claimed deductions for donated vehicles. IRS guidance
                              suggests that taxpayers consider using used car guides when estimating
                              the fair market value for donated vehicles, while also considering the
                              vehicle’s condition and mileage.18 Of the 54 cases, 25 assessments were
                              based on nationally recognized used car guides.19 However, since we did
                              not have additional information, such as the vehicle’s condition and




                              18
                                IRS Publication 561, Determining the Value of Donated Property.
                              19
                               Seven of the 54 did not identify the basis for their vehicle’s claimed value; 6 used a
                              “catalogue;” 8 stated they used comparable sale prices; and the remaining 8 out of 54 used
                              the Internet or other miscellaneous sources.




                              Page 19                                                      GAO-04-73 Vehicle Donation
                            mileage, we could not determine whether the reported valuations claimed
                            by donors accurately reflected fair market value.


                            The IRS has one compliance program that produces audit leads on
IRS and States              potentially overstated noncash contributions, but it does not follow up on
Compliance Activities       these leads. According to IRS officials, it does not audit cases with
                            potentially overstated noncash contributions because it has higher priority
Directed at Donated         compliance issues to address. Also, IRS data on its returns processing
Vehicle Issues Have         procedures that are directed to disallowing deductions for inappropriately
                            claimed noncash contributions show that a small percent of returns are
Identified Cases of         subject to these procedures and that few deductions are disallowed. As
Noncompliance               part of its National Research Program, IRS plans to gather information on
                            noncash contribution compliance issues, which could provide it with data
                            to determine how best to address noncash contribution compliance issues.
                            An IRS donated property task force has drafted several recommendations
                            that could lead to more emphasis being directed to vehicle donation
                            programs and deductions.

                            Data from the 11 states we contacted were limited regarding
                            noncompliance by charities and third-party agents involved with vehicle
                            donation programs. However, several states’ agencies have identified and
                            initiated legal actions against individuals and organizations that have not
                            complied with laws or regulations related to vehicle donations. These
                            include instances in which an organization posed as a charity to receive
                            donations, a third party inappropriately kept vehicle donation proceeds,
                            and a charity was not following state requirements for processing vehicles.


IRS’s Compliance            One of IRS’s compliance programs is designed to detect individual
Activities Results in Few   taxpayers who may overstate noncash contributions on their tax returns,
Disallowed Deductions       including donated vehicles. However, due to higher priority demands for
                            determining compliance with tax laws, IRS has not been following up on
for Noncash Contributions   leads of potential noncompliance that are generated from this program.
                            Under this program, about two full-time equivalent employees at IRS’s
                            Ogden Submission Processing Center are used to compare the proceeds
                            charities received from donated property shown on property disposal




                            Page 20                                           GAO-04-73 Vehicle Donation
forms (Form 8282 Donee Information Return20) with the amounts claimed
by taxpayers on their tax returns. If there is a wide discrepancy between
the charity’s revenues for the property and the amount claimed by the
taxpayer on their tax return, the case is referred to field offices for
possible audit.

An Ogden Campus official estimated that on average about 20,000 Form
8282s are received annually, and that 4,000 to 5,000 individual tax returns
are reviewed to determine whether they should be audited. An Ogden
official estimated that the cost to retrieve a tax return from IRS files is
between $100 and $150. Ogden officials stated that they do not track the
number of cases that are referred for possible audit or the types of
donated property involved in the cases, but estimated that 30 percent to
40 percent of the returns reviewed are referred.21 An IRS official estimated
that most referred cases related to donated land or boats, which generally
have higher potential tax assessments than do vehicles. According to our
analysis of the IRS audit data,22 none of the returns that were referred
during fiscal years 2001 and 2002 were audited. IRS officials stated that the
returns were not audited because the potential tax assessment yield from
these cases was substantially smaller than from other types of compliance
issues handled in the field.

IRS also established processing procedures for returns to identify and
disallow deductions for noncash contributions either when taxpayers
claim noncash contributions over a certain amount or when they do not
attach required Form 8283, Noncash Charitable Contributions 23 to their
returns. These processing procedures cover relatively few noncash
contribution deductions. For example, we estimate that for tax year
2000 returns, IRS’s returns processing threshold for these deductions


20
 Under section 6050L of the Internal Revenue Code, charities are required to submit Form
8282 “Donee Information Return” when they dispose of donated property within 2 years of
receiving property for which the taxpayer valued for more than $5,000. The form describes
the property, the donor, and the proceeds received by the charity. All Form 8282s are to be
sent to IRS’s Ogden Campus.
21
  According to Ogden officials, as of September 23, 2003, 516 cases had been referred to the
field in 2003.
22
 We analyzed IRS’s Audit Information Management System, which is a computerized file of
audit cases, to determine whether any of the Ogden cases were audited in fiscal years 2001
and 2002. We did not verify the accuracy of these data.
23
 Taxpayers are required to attach Form 8283 to their returns when they have noncash
contributions over $500. We did verify the accuracy of IRS’s disallowed deductions data.




Page 21                                                       GAO-04-73 Vehicle Donation
would account for about 1 percent of the returns where noncash
contributions of over $500 were claimed. According to IRS, returns that
meet the threshold are given a special code and are reviewed by the
examination staff to determine whether they have audit potential. Returns
with audit potential are put in the audit inventory for possible audit
selection by field agents. IRS found that these returns were not being
selected for audit because field agents had other higher priority work. IRS
expects this higher priority work to continue into the foreseeable future,
and as a result, beginning in January 2004, returns processing staff will
discontinue coding these returns for review by examination staff. IRS does
not have data on the number of noncash contribution deductions that have
been disallowed because of missing Form 8283s, but IRS officials estimate
that few were disallowed. IRS also has returns processing procedures to
identify and disallow noncash donations to individuals or nonqualifying
organizations, such as political organizations. According to IRS, in
2002 it disallowed noncash contributions of about $21.8 million on 154 tax
returns for donations made to individuals and nonqualifying
organizations.24

In addition to the above compliance activities that focus on taxpayers’
deductions for donated vehicles and other types of noncash contributions,
IRS’s Exempt Organization Division has an examination program that
focuses on whether charities meet tax-exempt requirements and complies
with federal law, such as those governing the use of funds for a charitable
purpose rather than private gain. IRS had little information on whether its
examinations identified compliance problems with charities operating
vehicle donation programs. At the time of our review, IRS officials
informed us that IRS had seven vehicle donation program examinations in
progress and had completed two cases. According to an IRS official, in one
recent case, IRS revoked the exemption status for one Florida
organization whose charitable purpose was to provide research,
education, and technical training on the marine environment. The charity
raised funds through the solicitation and sale of boats. IRS found that the
organization’s charitable activities were insubstantial, and that private
parties were benefiting from the substantial economic benefit of the
organization’s activities.




24
 As of August 31, 2003, IRS data shows that 139 deductions valued at about $12 million
were disallowed.




Page 22                                                      GAO-04-73 Vehicle Donation
Results of National      While more compliance resources are being devoted to higher priority
Research Program and     audit issues such as abusive tax shelters and high-income nonfilers, IRS’s
Donated Property Task    National Research Program is to provide data on compliance problems
                         associated with noncash contributions, including deductions for donated
Force May Lead to More   vehicles. Under the program, the IRS randomly selected about 47,000 tax
Noncash Contribution     year 2001 returns to determine whether taxpayers complied with statutory
Compliance Activities    income, expense, and tax reporting requirements. Returns with noncash
                         contributions, including donated vehicles, could be subject to audit to
                         verify donation claims. Once this project is completed in December
                         2004, IRS plans to assess individuals’ compliance related to deductions
                         for noncash contributions and determine what actions are needed to help
                         ensure proper reporting in this area.

                         In 2001, IRS established a donated property task force that examined
                         various issues relating to such topics as property appraisals and valuations
                         and coordination of compliance activities between various IRS
                         organizational units. In July 2002, the task force developed several draft
                         recommendations for improving IRS’s oversight of donated property
                         programs and deductions. The recommendations included revising Form
                         8283 to add a separate category for donations of motor vehicles on the
                         portion of the form that identifies the type of property donated. Another
                         recommendation made was to establish procedures to ensure that IRS
                         records and maintains copies of Form 8282s that are filed with the Ogden
                         Submission Processing Center. The task force noted that without such
                         procedures, IRS could not verify the accuracy of the forms or determine
                         whether charities filed them. The IRS’s audit procedures instruct auditors
                         to determine whether charities submit required Form 8282 when disposing
                         of donated vehicles. Auditors may assess penalties if they find that the
                         charity did not submit required Forms 8282.25 However, determining
                         whether charities filed the forms may be difficult because the forms are
                         destroyed if they are not used in Ogden’s noncash contribution audit
                         referral program discussed above. According to IRS officials, at the time
                         of our review, IRS had not taken action on this recommendation.




                         25
                           Under Internal Revenue Code section 6721, a $50 penalty can be assessed for each failure
                         to file a Form 8282.




                         Page 23                                                      GAO-04-73 Vehicle Donation
State Agencies Have     Many states oversee charities to protect the public, and 39 states and the
Identified Compliance   District of Columbia require charities to register with the state attorney
Problems with Donated   general or the secretary of state offices. States have an interest in whether
                        charitable fund-raising is fraudulent and whether charities are using funds
Vehicle Programs        to meet the charitable purpose for which they were created. We contacted
                        11 state attorney general offices or secretaries of state to identify
                        information related to vehicle donation programs. Only 1 state reported
                        having data to identify charities with vehicle donation programs; however,
                        several said that they would investigate a charity vehicle donation
                        program if they received complaints from the public. As discussed in the
                        following items, several of these states uncovered problems with vehicle
                        donation programs, including instances in which an organization posed as
                        a charity to receive donations, third-party agents inappropriately kept
                        vehicle donation proceeds, a charity was not following state requirements
                        in processing vehicles, and individuals solicited vehicle donations for
                        fictitious charities.

                        •   In Massachusetts, a for-profit company representing itself as a charity
                            solicited cars through newspaper ads leading potential donors to
                            believe that the organization was a charity and that all, or a substantial
                            portion of the proceeds would go directly to providing counseling to
                            children and parents in Massachusetts. In May 2002, Massachusetts
                            brought and won an enforcement action in which the company’s
                            president agreed with state officials to cease all further activity related
                            to the car donation operation.

                        •   Connecticut officials filed suit in July 2003 against a used auto
                            dealership and a bogus charity that was created by the dealership’s
                            owner. Vehicles were solicited, supposedly to help abused and
                            abandoned animals, but virtually all of the proceeds were retained by
                            the auto dealership, which maintained one checking account for both
                            organizations, according to state officials.

                        •   Ohio’s Attorney General filed a complaint in 2003 against a nonprofit
                            organization that solicited over 800 vehicles in the name of donor
                            designated charities, but at least $258,000 in vehicle proceeds was not
                            provided to the designated charities, according to the complaint.

                        •   The California Attorney General’s office filed a civil action against the
                            incorporator of a nonprofit that solicited vehicles for charity, but there
                            was never a charitable program, only a used car lot. The Attorney
                            General’s office estimated that over $1 million was raised by the
                            operation, none of which benefited charity. Criminal charges against
                            the defendant resulted in a 5-year jail sentence.


                        Page 24                                               GAO-04-73 Vehicle Donation
                        •   In a case filed in June 2003, the California Attorney General’s office
                            filed a case against a nonprofit organization selling donated vehicles to
                            the public that had not met California’s safety requirements. Some
                            vehicles sold for export to locations such as Belize and Mexico, which
                            do not require the same state safety standards, were not actually
                            exported.

                        •   An indictment filed in a U.S. District court in October 2002, charges
                            that defendants established over 100 toll-free numbers with sound–
                            alike charity names, such as the National Mental Health Association,
                            Cancer Society, or National Diabetes Association. According to the
                            case filing, potential donors were fraudulently told that the sound-alike
                            organizations were the national charities whose names they
                            approximated or were affiliated with nationally known charities;
                            however, according to the case records, the defendants kept all
                            proceeds.

                        A number of government and consumer organizations provide guidance to
Guidance Is Available   donors to assist them in making informed decisions about donating their
to Donors and           vehicles. Guidance is also available to assist charities in accepting noncash
                        contributions and in selecting, hiring, and managing third-party agents.
Charities Regarding
Vehicle Donations

Donor Guidance for      Charitable donors in general, including those that donate their vehicles,
Donating Vehicles       can rely on guidance available from the federal government and other
                        sources to ensure that they make informed donations. For example, IRS
                        publishes guidance on claiming deductions for donations, and establishing
                        fair market value for items donated. In addition, a Federal Trade
                        Commission-led initiative highlights legal actions taken against individuals
                        and organizations that engage in phony philanthropic activities, and
                        provides tips on how to recognize and avoid fraudulent solicitations. Some
                        states also offer guidance for potential donors and may have financial
                        information on specific charities. A number of nongovernmental sources
                        offer donors similar advice. For example, the Better Business Bureau’s
                        Wise Giving Alliance, Guidestar, Charity Navigator, and the American
                        Institute of Philanthropy offer tips for charitable giving or information on
                        specific charities.

                        Appendix IV lists specific sources for donor guidance.




                        Page 25                                             GAO-04-73 Vehicle Donation
                        The guidance generally identifies steps donors should take when donating
                        vehicles and claiming associated tax deductions. These steps are listed as
                        follows:

                        •   Verify that the recipient organization is a tax-exempt charity. Churches,
                            synagogues, temples, mosques, and governments are not required to
                            apply for this exemption in order to be qualified.

                        •   Determine whether the charity is properly registered with the state
                            government agency that regulates charities. The state regulatory
                            agency is generally the state attorney general’s office or the secretary
                            of state.

                        •   Ask questions about how the donated vehicle will be used to determine
                            whether it will be used as intended. Such questions include: Will the
                            vehicle be fixed up and given to the poor and needy? Will it be resold
                            and, if so, what share of the proceeds will the charity receive?

                        •   Itemize deductions in order to receive a tax benefit from the donation.
                            The decision to itemize should be determined by whether total itemized
                            deductions are greater than the standard deduction.

                        •   Deduct only the fair market value of the vehicle. The fair market value
                            takes into account many factors, including the vehicle’s condition, and
                            can be substantially different from the value listed in used car guides.

                        •   Document the charitable contribution deduction. IRS Publication
                            526 identifies requirements for the types of receipts taxpayers must
                            obtain and the forms they must file.

                        •   Follow state law regarding the car titles and license plates. Generally,
                            the donor should ensure that the title of the vehicle is transferred to the
                            charity’s name by contacting the state department of motor vehicles,
                            and keep a copy of the title transfer. Donors are also advised to remove
                            the vehicle’s license plate if allowed by the state.

Guidance to Charities   Some guidance is also available to charities with vehicle donation
                        programs regarding accepting noncash contributions and hiring a third-
                        party agent for fund-raising purposes. For example, IRS Publication
                        1771, Charitable Contributions, Substantiation, and Disclosure
                        Requirements, explain federal law for organizations that receive tax-
                        deductible contributions. The IRS also plans to publish, by March 31,
                        2004, a brochure advising charities on how to avoid problems raised by
                        vehicle donation programs. State guidance to charities we reviewed was


                        Page 26                                              GAO-04-73 Vehicle Donation
             generally not specific to vehicle donation programs, but rather provided
             general guidelines for selecting, hiring, and managing third-party agents. In
             addition, a number of nongovernmental sources offer charities similar
             advice. The Better Business Bureau, for example, publishes standards for
             charities in areas such as fund-raising activities, and issuing informational
             materials to donors. Appendix IV lists specific sources for charitable
             guidance.

             Some of the general guidance provided to charities that are relevant to
             donation programs are listed as follows.

             •   Consult and adhere to IRS’s publications explaining federal law for
                 organizations that receive tax-deductible contributions, and review
                 IRS’s annual Exempt Organizations Implementing Guidelines.

             •   Comparison shop for fund-raising agents, insist on a written contract,
                 and do not relinquish control of a program to the fund-raiser.

             •   Follow standards published by various nongovernmental sources for
                 governance, oversight, fund-raising activities, and issuing informational
                 materials.

             IRS will not have data on whether taxpayers are appropriately claiming tax
Conclusion   deductions for noncash contributions, including donated vehicles, until it
             completes its National Research Program study at the end of 2004. In the
             meantime, IRS is using resources to produce audit leads on overstated
             noncash contributions that are not being audited because of higher
             priority compliance demands. To determine whether these resources
             could be used more productively, IRS could assess the merits of the
             noncash contribution compliance program to determine whether it could
             be modified to take advantage of the leads that are generated, such as
             auditing taxpayers through correspondence instead of sending them to
             field offices.

             The IRS has audit procedures that instruct auditors to assess penalties
             against charities that do not file the required Form 8282 when they dispose
             of property. However, as reported by its donated property task force, IRS
             does not have a way of verifying whether charities file the required Form
             8282 or whether forms that are filed are accurate. The task force’s draft
             recommendation to maintain and record Form 8282 is worth considering.
             This recommendation was made in July 2002, and has not been acted
             upon.




             Page 27                                             GAO-04-73 Vehicle Donation
                      In conjunction with IRS’s ongoing National Research Program study,
Recommendations for   which is to be completed in December 2004, we recommend that the
Executive Action      Commissioner of the Internal Revenue assess (1) whether the Ogden
                      compliance program should be modified to take advantage of the leads
                      generated by the program and (2) the feasibility and usefulness of
                      maintaining and recording the receipt of Form 8282 as recommended by
                      IRS’s donated property task force.


                      We received written comments on a draft of this report from the
Agency Comments       Commissioner of Internal Revenue (see app. V). The Commissioner agreed
and Our Evaluation    with our recommendations and identified some alternatives and actions
                      that IRS is considering to ensure compliance by charities with reporting
                      requirements.

                      With regard to our recommendation that IRS assess its compliance
                      program for generating audit leads on taxpayers that may have overstated
                      their noncash contributions, the Commissioner stated that IRS actions
                      related to the compliance program will be based on its review of the level
                      of noncompliance in reporting noncash contributions. The Commissioner
                      also agreed with our second recommendation to consider whether the
                      Form 8282s that charities submit when disposing of donated property
                      should be recorded and retained. He stated that decisions on the handling
                      of the forms would be made in conjunction with decisions on the first
                      recommendation and with other changes IRS has underway, particularly
                      the redesign of the Form 990. IRS is considering changing the Form 990 to
                      include information on the filing of Form 8282 as an alternative to
                      retaining the Form 8282.

                      The Commissioner noted that some steps have already been taken to
                      improve the reporting of vehicle donation programs, such as the revision
                      of Form 990 filing instructions for 2003 to provide organizations with an
                      example of a vehicle donation, and other actions noted in our report.


                      As arranged with your office, unless you publicly announce its contents
                      earlier, we plan no further distribution of this report until 30 days after the
                      date of this report. We will then send copies of this report to the Secretary
                      of the Treasury; the Commissioner of Internal Revenue; the Director,
                      Office of Management and Budget; and other interested parties. We will
                      also make copies available to others on request. The report is also
                      available on GAO’s Web site at http://www.gao.gov.




                      Page 28                                              GAO-04-73 Vehicle Donation
If you or your staff have any questions on this report, please contact me at
(202) 512-8777 or Ralph Block at (415) 904-2150. Key contributors to the
report are listed in appendix VI.




Cathleen A. Berrick, Director,
Homeland Security and Justice Issues




Page 29                                            GAO-04-73 Vehicle Donation
                                           Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and         Methodology



Methodology

                                           Our objectives were to determine: (1) the number of charities with vehicle
                                           donation programs, and the number of taxpayers claiming deductions for
                                           vehicle donations; (2) the vehicle donation process; (3) proceeds received
                                           by charities from vehicle donations to what donors claim for vehicle
                                           donation deductions; (4) the Internal Revenue Service’s (IRS) and state
                                           compliance activities directed at vehicle donations and incidents of
                                           noncompliance; and (5) guidance available to taxpayers and charities to
                                           help them make informed decisions regarding vehicle donations. To
                                           satisfy these objectives, we relied on two sources of nationally
                                           representative information and several anecdotal sources of information.
                                           Table 2 summarizes the primary data sources used to address each of the
                                           objectives.

Table 2: Data Sources Used to Address Objectives

                                                                                                           IRS and
                           National       IRS’s Statistics of      Charity       Third-party agents          state           Other data
                                                                                                                                     a
 Objectives              charity survey      Income file           officials         and others            officials          sources
 (1)Number of vehicle          x                                                                                x
 donation programs

 Number of taxpayers                               x                                                            x
 claiming deductions
 (2) Vehicle donation          x                                      x                    x                    x                  x
 process
 (3) Vehicle donation          x                                      x                    x                    x                  x
 proceeds
 (4) IRS, state                                                                                                 x
 compliance activities
 (5) Taxpayer and                                                                          x                    x
 charity guidance
Source: GAO.
                                           a
                                            Other data sources include 54 tracked vehicle donation cases, Internet searches, and a judgmental
                                           sample of vehicle donation advertisements.




National Charity Survey                    To estimate the number of charities that have vehicle donation programs,
                                           we conducted a national telephone survey with a statistically
                                           representative sample of organizations registered with IRS as 501(c)(3)
                                           organizations (charities) with an annual income of at least $100,000. The
                                           sample was drawn from the 2002core data set (tax year 2001) of the
                                           National Center for Charitable Statistics (NCCS), which contains the IRS
                                           Form 990 data for all nonprofit organizations in the United States. A
                                           simple random sample of 600 charities was drawn from the population of



                                           Page 30                                                            GAO-04-73 Vehicle Donation
                            Appendix I: Objectives, Scope, and
                            Methodology




                            157,512 charities. The NCCS data were determined to be sufficiently
                            reliable for the purposes of our report, based on interviews with NCCS
                            officials regarding reliability procedures and observation of the sampling
                            process.

                            Valid telephone numbers could not be obtained for 11 percent of the
                            charities in the sample, and 6.8 percent of the charities did not answer the
                            telephone after several contact attempts or did not return calls, yielding a
                            total rate of nonresponse of 17.8 percent. We took steps to reduce errors
                            in our estimates by pretesting the survey with charities of varying
                            characteristics and performing computer analyses to identify
                            inconsistencies and other indicators of errors.

                            We received valid responses from 493 of the 600 charities, for a response
                            rate of 82.2 percent. Interview responses were weighted to account for the
                            initial sampling rate and response rate. As with most surveys, our
                            estimation assumes that nonrespondents would have answered like the
                            survey respondents, and we do not know of any evidence about whether
                            our respondents were different from nonrespondents. Our confidence in
                            the precision of the results from this sample is expressed in 95 percent
                            confidence intervals. We are 95 percent confident that the results we
                            would have obtained had we studied the entire population are within +/- 2
                            percentage points of this result.


Statistics of Income Data   To estimate the number of taxpayers that claimed deductions for donated
                            vehicles, we analyzed a random sample of tax year 2000 individual tax
                            returns from IRS’s Statistics of Income (SOI) individual tax return file. The
                            SOI file is a stratified probability sample of income tax returns filed with
                            the IRS. The tax year 2000 sample represented about 129 million tax
                            returns. The SOI sample contained information on 34,942 returns where
                            taxpayers itemized deductions and claimed a noncash contribution of over
                            $500. We randomly sampled 600 cases from this sample population and
                            requested the tax returns from the IRS. Weights were adjusted to represent
                            all taxpayers claiming noncash contributions exceeding $500. Of the
                            600 cases in our sample, actual returns were available for 509 of the cases.
                            We determined that the SOI data were sufficiently reliable for the
                            purposes of our report based on interviews with IRS officials and testing
                            for bias in our sample. No bias was identified in a comparison of available
                            returns and nonavailable returns in terms of taxable income, total
                            contributions, and several other factors.




                            Page 31                                            GAO-04-73 Vehicle Donation
                          Appendix I: Objectives, Scope, and
                          Methodology




Charity Officials         To obtain information on vehicle donation program processes and
                          proceeds from vehicle sales, we contacted 65 charities throughout the
                          country. The 65 charities included:

                          •   16 charities in our national charity survey that reported having a
                              vehicle donation program,

                          •   8 charities interviewed as pretests to the survey, and

                          •   41 charities identified in advertisements or on taxpayer deduction
                              claims.

                          Not all 65 charities provided information on all topics discussed in the
                          report. Where information is reported, the specific number of charities
                          that provided information related to the topic discussed is included.
                          These examples cannot be generalized beyond the charities responding.


Third-Party Agent and     We interviewed six third-party agents that provide vehicle donation
Other Organizations       program services to charities for examples of how the vehicle donation
Interviewed               process works for their organizations and the charities they served. Some
                          of the agents represented more than 100 different charities; however, the
                          information we received from these agents cannot be generalized beyond
                          the agents responding. We relied on a number of sources to identify
                          vehicle donation third-party agents, including state attorney generals’
                          office officials, donated vehicle advertisements, and charity officials.

                          To obtain information on guidance provided to donors and charities, we
                          interviewed officials or reviewed materials from several organizations
                          involved with charity oversight or charity fund-raising, including the Better
                          Business Bureau, Chronicles of Philanthropy, the Independent Sector, and
                          the American Institute of Philanthropy.


IRS and State Officials   In addressing all of our objectives, we spoke with IRS headquarters
                          officials from the Tax Exempt and Government Entities Operating
                          Division, the Wages and Investment Operating Division, and the Small
                          Business/Self-Employed Operating Division. We also conducted an on-site
                          visit to IRS’s Ogden Campus to obtain information on its Form 8282
                          compliance program. We also interviewed the Chairperson of the IRS
                          Vehicle Donations Working Group.




                          Page 32                                             GAO-04-73 Vehicle Donation
                     Appendix I: Objectives, Scope, and
                     Methodology




                     We contacted state officials based on referrals from the IRS and the
                     National Association of State Charity Officials. We also interviewed state
                     officials in California, Michigan, Massachusetts, Florida, Pennsylvania,
                     South Carolina, Ohio, Oregon, Connecticut, Washington, and Texas.


Other Data Sources   To determine the amount of proceeds charities receive from donated
                     vehicles relative to the amounts taxpayers claimed as tax deductions, we
                     tracked a judgmental set of donated vehicles obtained from 4 charities in
                     4 states. Two charities were local charities that used third-party agents to
                     manage their vehicle donation programs; 1 was a national charity that
                     used a third-party agent to handle processing (but not advertising) for
                     their vehicle donation program; and the fourth was a national charity that
                     managed its vehicle donation program in-house. The information we
                     obtained from the charities included the vehicle description, selling price,
                     net amount received by the charity after expenses, and donor information.
                     Using the donor information, we requested tax return data from the IRS to
                     determine the amounts donors claimed as deductions for their vehicles.
                     Not all of the vehicle donors claimed deductions for their donations. Of
                     the 70 donors the IRS was able to identify as filing returns, 12 did not
                     itemize their taxes. Four additional cases were dropped due to data errors
                     or missing information. We were able to track the remaining 54 vehicle
                     donations. The individual cases or cases in aggregate are for illustration
                     only, and cannot be used to generalize to vehicle donations overall. Our
                     analysis of the 54 tracked vehicles is shown in appendix III.

                     We reported summary data from the California Office of the Attorney
                     General regarding the percent of proceeds received by charities from
                     vehicle donation programs using commercial fundraisers. We discussed
                     data reliability issues with state officials and determined that the data
                     were sufficiently reliable for the purposes of our report.




                     Page 33                                            GAO-04-73 Vehicle Donation
                                                   Appendix II: Sample Claims of Vehicle
Appendix II: Sample Claims of Vehicle              Donation Advertisements



Donation Advertisements

                                                   Based on a review of a nonprojectable sample of vehicle donation
                                                   advertisements, we found that vehicle donation advertisements most often
                                                   stated that individuals could claim a tax deduction for the donation, if the
                                                   donation served a charitable purpose, and the donor’s vehicle would be
                                                   towed free of charge. We analyzed 147 advertisements, including
                                                   69 newsprint advertisements from a sample of 50 newspapers nationwide,
                                                   33 radio advertisements from 19 radio stations in the top 10 U.S. markets,
                                                   and 44 Internet advertisements. Figure 9 identifies the most common
                                                   claims made in the newspaper, radio, and Internet advertisements we
                                                   reviewed.

Figure 9: Most Common Claims in Newspaper, Radio, and Internet Advertisements Reviewed

Percent of advertisements
100

 90

 80

 70

 60

 50

 40

 30

 20

 10

  0
      Ads with               Tax        Serves              Free          Vehicles           Avoid            Some              Percent         Other
      no claims           deduction   charitable          towing/        accepted           hassles        restrictions         going to
                                       purpose            pick up      running or not                                            charity


               Newspaper

               Radio

               Internet

Source: GAO.

                                                   Note: Claims classified as “other” included promises that vehicles would be picked up in 24 hours,
                                                   title transfer would be handled, or contributions would be used locally.


                                                   According to an IRS official, advertisement claims are potentially
                                                   misleading when they do not specify that taxpayers must itemize their
                                                   deductions to claim a deduction for vehicle donations, since many



                                                   Page 34                                                                GAO-04-73 Vehicle Donation
Appendix II: Sample Claims of Vehicle
Donation Advertisements




taxpayers do not itemize their deductions. Of the 147 advertisements we
reviewed, 117 indicated that taxpayers could claim a tax deduction, but
only 7 advertisements specified that donors must itemize in order to claim
a deduction.

In addition, IRS officials stated that advertisements could be misleading
when they claim donors can value their vehicles at full, or maximum,
market value when claiming a tax deduction, particularly when the same
advertisements claim that vehicles are accepted whether they are running
or not. Full or maximum market value, although not clearly defined,
implies that a vehicle is in good running condition with no major
mechanical defects. Fair market value equates to what a vehicle would sell
for on the market, and takes into account a vehicle’s condition and
mileage, among other factors. Of the 147 advertisements we reviewed,
8 identified that a donor could claim full or maximum market value, while
more commonly, advertisements identified that donors could claim fair
market value on their tax returns when donating their vehicles.

Responsibility for oversight of advertisements is diffused. The Federal
Communications Commission defers regulatory authority regarding false
advertising on radio or television to the Federal Trade Commission (FTC).
The FTC does not have specific jurisdiction over charities, but may
become involved in cases of fraud. State officials are primarily responsible
for false advertising by charitable organizations. Officials we interviewed
from 2 states said that limited resources prevent them from providing
broad oversight over advertisements, and that they generally review
advertisements in response to consumer complaints, or when they
discover that charities or third-party agents are soliciting in their state
without being registered.

Table 3 identifies the number of advertisements we reviewed that
specified taxpayers must itemize their deductions to claim a vehicle
donation; that taxpayers could claim full, maximum, or fair market value
for their deduction; and whether the advertisement referred potential
donors to the IRS Web site, an accountant, the Kelley Blue Book,1 or other
source for guidance on claiming a tax deduction.




1
The Kelley Blue Book is a used car guide featuring 15 years of values for over 10,000
models of cars, trucks, and vans and is available both in print and Internet format.




Page 35                                                      GAO-04-73 Vehicle Donation
Appendix II: Sample Claims of Vehicle
Donation Advertisements




Table 3: Vehicle Donation Claims Related to Tax Deductions (by medium)

                                           Newspaper                        Radio       Internet         Total
 Must itemize                                              1                    0             6              7
 Full market value                                         3                    1             2              6
 Maximum value                                             0                   0              2              2
 Fair market value                                         7                    7            24             38
 Consult IRS Web site                                      0                    0            14             14
 Consult with accountant                                   2                    3            17             22
 Kelley Blue Book                                          1                    4            22             27
 Other (e.g. IRS)                                        12                     3             7             22
Source: GAO.

Note: Some ads contained more than one claim, so the total number of claims is greater than the
147 advertisements we reviewed.


The transcript from an actual radio advertisement identifying some of the
benefits of vehicle donation programs is shown in figure 10.

Figure 10: Transcript of Actual Radio Advertisement for Vehicle Donations


                                  That Car
  What to do with that car? Donate it to the Council of the Blind!
  Donating a car is trouble free; you get a tax write off, and do your
  part for a worthy cause. The California Council of the Blind has
  helped in the workplace since the thirties. Simply call, we’ll pick up
  that car, running or not, in most cases, plus boats--even real estate
  can be donated for a write off. Call our live operators for your free
  pick up now-- 800 xxx-xxxx. 800 xxx-xxxx, that’s xxx-xxxx.

  Source: Courtesy of Pete Palmer Advertising, San Francisco, California.




Page 36                                                                             GAO-04-73 Vehicle Donation
                                        Appendix III: Selected Vehicle Donations
Appendix III: Selected Vehicle DonationsTracked from Donation to Taxpayer Claim for
                                        Charitable Deduction


Tracked from Donation to Taxpayer Claim
for Charitable Deduction
                                        Table 4 details 54 specific vehicle donations identifying the amount of
                                        proceeds charities receive from donated vehicle sales relative to the
                                        amounts taxpayers claim as tax deductions for donated vehicles.
                                        Information on this judgmental set of 54 vehicle donations were obtained
                                        from 4 charities in 4 states. The individual cases or cases in aggregate are
                                        for illustration only, and cannot be used to generalize vehicle donations
                                        overall.

Table 4: Vehicle Donations Tracked from Donation to Taxpayer Claim for Charitable Deduction—54 Vehicles

                                                                                         Gross sale                        Charity
                                                                   Net        Donated      price as     Proceeds to        receipt
                                                           proceeds            vehicle   percent of     charity as a     (loss) as
                                             Vehicle        (loss) to            value      amount        percent of    percent of
Vehicle as described in taxpayer               gross     charity from      claimed on        donor        gross sale        donor
documents                                  sale price    vehicle sale       tax return     claimed       price (loss)        claim
1990 Mercury Station Wagon                         $30         ($130)          $2,915           1%           (433%)          (4%)
1989 Subaru GL                                    $50           ($45)          $3,100           2%            (90%)          (1%)
1991 Plymouth Voyager                             $40           ($25)          $1,700           2%            (63%)          (1%)
1993 Ford                                          $25          ($20)          $2,000           1%            (80%)          (1%)
1988 Ford Escort                                   $25          ($20)          $1,000           3%            (80%)          (2%)
1990 Ford Taurus                                   $30          ($15)          $1,500           2%            (50%)          (1%)
1986 Toyota 4-Runner                              $300             $5          $3,950           8%               2%           0%
1981 Toyota Celica                                $100             $5            $500          20%               5%           1%
1991 Ford Crown Victoria                          $300          $165           $3,100          10%              55%           5%
1990 Nissan 240 SX                                $450          $293           $2,375          19%              65%          12%
1993 Chevrolet Cavalier                           $450          $405             $750          60%              90%          54%
1996 Ford Taurus                                  $700          $480           $3,500          20%              69%          14%
1991 Saab 9000S                                   $950          $653           $4,500          21%              69%          15%
1994 Saturn SL2 Sedan 4D                       $1,350           $968           $5,750          23%              72%          17%
1988 Toyota Camry                                 $900          $615           $2,680          34%              68%          23%
1992 Pontiac Grand Am SE-V6                       $325          $174           $2,750          12%              54%           6%
1989 Toyota All Trac Wagon (Corolla)              $600          $390           $1,000          60%              65%          39%
1995 Toyota 1/2 Ton Pickup                     $1,800          $1,290          $4,999          36%              72%          26%
1989 Plymouth Grand Voyager                       $200            $55          $1,900          11%              28%           3%
1980 Datsun 510                                   $350          $213           $1,400          25%              61%          15%
                                                                       a
1992 Lincoln Continental                       $1,200         $1,065           $4,675          26%              89%          23%
                                                                       a
1989 Chevrolet Blazer S10-2DR                     $300          $180           $4,050           7%              60%           4%
                                                                       a
1989 Ford Taurus                                  $225           $84           $1,500          15%              37%           6%
                                                                       a
1987 Chevy Pickup                                 $350          $245             $500          70%              70%          49%
                                                                       a
Red Honda Accord LXI 2D                           $150           $10           $4,175           4%               7%           0%




                                        Page 37                                                       GAO-04-73 Vehicle Donation
                                                                   Appendix III: Selected Vehicle Donations
                                                                   Tracked from Donation to Taxpayer Claim for
                                                                   Charitable Deduction




                                                                                                                                          Gross sale                               Charity
                                                                                                      Net              Donated              price as            Proceeds to        receipt
                                                                                              proceeds                  vehicle           percent of            charity as a     (loss) as
                                                                          Vehicle              (loss) to                  value              amount               percent of    percent of
 Vehicle as described in taxpayer                                           gross           charity from            claimed on                donor               gross sale        donor
 documents                                                              sale price          vehicle sale             tax return             claimed              price (loss)        claim
                                                                                                              a
 1994 Dodge Caravan                                                             $650                  $510                 $4,535                   14%                  78%         11%
                                                                                                              a
 1993 Saturn SC 2                                                               $225                    $70                $3,800                     6%                 31%          2%
                                                                                                              a
 1990 GMAC Convention                                                           $400                  $245                 $4,800                     8%                 61%          5%
                                                                                                              a
 1991 Toyota Camry                                                              $675                  $520                 $2,039                   33%                  77%         26%
                                                                                                              a
 1995 Dodge Caravan                                                             $900                  $715                 $4,692                   19%                  79%         15%
                                                                                                              a
 1991 Toyota Camry                                                              $400                  $285                 $4,500                     9%                 71%          6%
                                                                                                              a
 1988 Toyota Corolla Wagon                                                        $35                   $20                $1,427                     2%                 57%          1%
                                                                                                              a
 1986 Mazda B2000 LX Long Bed                                                     $35                   $20                $1,095                     3%                 57%          2%
                                                                                                              a
 1985 Volvo 760                                                                   $35                   $20                $2,654                     1%                 57%          1%
                                                                                                              a
 Automobile                                                                       $50                   $35                   $395                  13%                  70%          9%
                                                                                                              a
 1987 Ford Thunderbird                                                            $35                   $10                $1,595                     2%                 29%          1%
                                                                                                              a
 1994 Hyundai Elantra                                                             $25                   $10                $1,450                     2%                 40%          1%
                                                                                                              a
 1988 Mazda Pickup                                                              $125                    $75                $1,525                     8%                 60%          5%
                                                                                                              a
 1987 Volvo 740                                                                   $50                   $35                $3,000                     2%                 70%          1%
                                                                                                              a
 1986 Chrysler Town & Country                                                     $35                   $20                $1,850                     2%                 57%          1%
                                                                                                              a
 1988 Olds Cutlass Wagon                                                          $25                   $10                $1,000                     3%                 40%          1%
                                                                                                              a
 1987 Honda                                                                       $70                   $10                $1,500                     5%                 14%          1%
                                                                                                              a
 1987 Subaru                                                                      $25                   $10                $1,890                     1%                 40%          1%
                                                                                                              a
 1987 Volvo                                                                       $50                   $35                $2,175                     2%                 70%          2%
                                                                                                              a
 1996 Dodge Caravan                                                             $110                    $60                $1,800                     6%                 55%          3%
                                                                                                              a
 1986 Nissan Maxima                                                               $40                   $15                $1,250                     3%                 38%          1%
                                                                                                              a
 1990 Ford Taurus L                                                               $25                   $10                $1,105                     2%                 40%          1%
                                                                                                              a
 1988 Oldsmobile Cutlass                                                          $35                   $20                   $900                    4%                 57%          2%
 1983 Audi 5000 4DR Turbo                                                       $100                       $0              $1,500                     7%                 0%           0%
 1985 Toyota Celica                                                             $250                     $10               $2,000                   13%                  4%           1%
 1983 GMC Jimmy                                                                 $375                     $31               $2,400                   16%                  8%           1%
 1982 Toyota Starlet                                                            $300                     $22               $1,225                   24%                  7%           2%
 1983 Volvo 240 2 door                                                          $450                     $55               $2,000                   23%                  12%          3%
 1991 Plymouth Acclaim Sedan 4D                                                 $475                     $52               $3,285                   14%                  11%          2%
Source: GAO summary of specific vehicle donations made to 4 charities and associated tax claims for those donations. All dollar amounts rounded to the nearest dollar.
                                                                   a
                                                                   Excluding expenses associated with advertising.




                                                                   Page 38                                                                                   GAO-04-73 Vehicle Donation
                                             Appendix IV: Vehicle Donation Guidance
Appendix IV: Vehicle Donation Guidance


                                             Government and consumer organizations provide guidance to donors to
                                             assist them in making informed decisions about donating vehicles.
                                             Guidance is also available to charities to assist them in selecting, hiring,
                                             and managing third-party agents. A partial list of resources is included in
                                             table 5.

Table 5: Sources of Guidance in Making Vehicle Donation Decisions

Sources                                                Available information
Internal Revenue Service                               • Lists tax exempt organizations that may qualify donors for tax deductions
                                                         (Pub. 78). IRS also suggests Guidestar (see below) as a resource.
www.irs.gov
                                                       • Describes contributions that qualify for tax deductions and recordkeeping
                                                         requirements (Pub. 526).
                                                       • Describes information necessary for donors to value and deduct noncash
                                                         contributions (Pub 561).
                                                       • Provides guidance for exempt organizations on documenting charitable
                                                         contributions (Pub. 1771).
                                                       • Provides an annual brochure called Exempt Organizations Implementing
                                                         Guidelines, Vehicle Donations, that advises how exempt organizations can
                                                         avoid problems with vehicle donation programs.
Federal Trade Commission                              Provides tips on how to recognize and avoid deceptive solicitations. In
                                                                                      a
www.ftc.gov                                           conjunction with state officials launched Operation Phony Philanthropy, to
                                                      identify fraudulent fundraising activities, none of these cases to date have
                                                      involved vehicle donations.
State charity regulators                              • Lists contacts for state regulators overseeing charitable solicitations, including
                                                         those with vehicle donation programs, and general information state
-The National Organization of State Charity Officials
                                                         regulators need to know.
www.nasconet.org
-Individual state Web sites, such as:                  •   Provide information to donors on making contribution decisions, including
                                                           financial information on charities or their fund-raisers.
California Attorney General
www.caag.state.ca.us
Michigan Attorney General
www.michigan.gov/ag
New York Attorney General
www.oag.state.ny.us
Guidestar                                              •   Provides a national database of U.S. charitable organizations, and general
                                                           information relevant to IRS-recognized nonprofits.
www.guidestar.org
Better Business Bureau’s                               •   Provides a Vehicle Donations Checklist that, among its seven tips, advises
                                                           the donor to take a photo of the car for tax records and to keep copies of
Wise Giving Alliance
                                                           current classified ads or guide value estimates for similar vehicles.
www.give.org/tips/usedcar.asp                          •   Provides general standards charities should meet, including those with
                                                           vehicle donation programs, enabling donors to evaluate (1) how charities are
                                                           governed, (2) the ways they spend money, (3) the truthfulness of their
                                                           representations, and (4) their willingness to disclose basic information to the
                                                           public. Standards also help charities maintain overall good governance of
                                                           their vehicle donation programs.




                                             Page 39                                                        GAO-04-73 Vehicle Donation
                                                              Appendix IV: Vehicle Donation Guidance




 Sources                                                                  Available information
 Charity Navigator                                                        •   Provides advice to donors of used vehicles, such as urging donors who have
                                                                              to use third-party agents to research the percentage the charity ultimately
 www.charitynavigator.org
                                                                              receives.
 American Institute of Philanthropy                                       •   Provides search capability to locate tax exempt organizations that may qualify
                                                                              vehicle donors for tax deductions.
 www.charitywatch.org
                                                                          •   Provides tips to donors of used vehicles, such as encouraging them to get a
                                                                              receipt from the charity for their vehicle donation.
 Chronicle of Philanthropy                                                •   Provides general information for subscribers on all matters involving
                                                                              philanthropic enterprises, including fund-raisers who may process vehicle
 http://philanthropy.com
                                                                              donations.
Source: GAO analysis of government and consumer organizations guidance.
                                                              a
                                                              Participating states included Connecticut, Florida, Illinois, Kansas, Massachusetts, Maine, Michigan,
                                                              Minnesota, Mississippi, North Dakota, New Jersey, New York, Oregon, Pennsylvania, South Carolina,
                                                              and South Dakota.




                                                              Page 40                                                             GAO-04-73 Vehicle Donation
              Appendix V: Comments from the Internal Revenue Service
Appendix V: Comments from the Internal
Revenue Service




              Page 41                                                  GAO-04-73 Vehicle Donation
Appendix V: Comments from the Internal Revenue Service




Page 42                                                  GAO-04-73 Vehicle Donation
                  Appendix VI: Staff Acknowledgments
Appendix VI: Staff Acknowledgments


                  Leo Barbour, Carl Barden, Keira Dembowski, Michele Fejfar, Tre Forlano,
Acknowledgments   Lemuel N. Jackson, Monica Kelly, Rosa Leung, Brittni Milam-Bell, Amy
                  Rosewarne, Sam Scrutchins, Addie Spahr, and Wendy Turenne made key
                  contributions to this report.




(450208)
                  Page 43                                         GAO-04-73 Vehicle Donation
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