Vehicle donations plummeted in 2005 as tax law changes confused would-be donors



Kent Potvin bought his family a green Chevy Malibu eight Christmases ago, after the transmission blew on their Chevy Corsica.

With more than 100,000 miles on the odometer, the Malibu is worn, and its gas gauge is broken. Rather than sell it, the family donated it last weekto a local charity, Charity Motors,to claim it as a tax write-off.
"It's not a bad little car -- I figured maybe they could do something with it," said Potvin, 45, of Walled Lake.

Fewer people in southeast Michigan are following the Potvins' example at the end of the tax year, which usually is the busy season for car donations, as people try to qualify for last-minute deductions.
At nonprofit Charity Motors, vehicle donations are down 25 percent for the year. Even in November and December -- a time when charities usually get a big boost -- donations are down 20 percent from last year. Motor City Blight Busters, a nonprofit civic improvement group, reports its car donations are off 90 percent from last year. Blight Busters got fewer than a dozen cars in the last three months.

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Charities blame tax law changes, and confusion about the changes, for the dearth of donations.

As of Jan. 1, 2005, donors no longer could deduct a vehicle's market value -- usually the figure cited in the Kelley Blue Book. Taxpayers could deduct only the amount for which the used vehicle was resold -- a figure that usually is much lower. In June, however, the Treasury Department granted an exception: donors who give vehicles to charities that resell donated cars to the poor can still claim the Blue Book deduction.
As a result, donors are "shopping around" for the fair market value tax deduction, said Bill Brazier, executive director of the Society of St. Vincent de Paul.

"The donor stipulates that they want (their car) to be used to help with transportation needs to the poor," Brazier said.
By picking Charity Motors, Potvin will be able to deduct $1,500. If he'd given the car to a charity that sold it to a dealer or to the general public, his deduction would have been limited to the amount for which the car was sold.

"I had heard advertisements and went online to find out if that's the case," Potvin said.
Last week, the IRS announced a further clarification: It will not accept fair market deductions on donated vehicles if they are resold at an auction -- even if the charity claims a needy person bought it.

In response, Volunteers of America Michigan will send revised receipts and letters of explanation next week to several hundred donors who originally were told they would be able to deduct the fair market value on their car donation this year.
"We're going to have to tell some donors the bad news," said Bob Brandsen, manager of Volunteers of America Michigan.

The IRS issued the clarification after discovering "questionable practices" by charities that auctioned donated cars to needy people at prices that were not significantly below the fair market value. No Michigan charity has been cited for improper car donation practices, said Stephen Moore, spokesman for IRS Criminal Investigation.
The latest clarification, however, may not be clear at all to potential donors who already are reluctant to give away their vehicles. Charities may also be unsure of what the announcement means for them.

"Lots of people are still confused," said Charity Motors spokesman Rick Frazier."The law is vague in a lot of areas."
Donors to the nonprofit, one of the few that qualifies its donors for the fair market deduction, can still deduct the fair market value -- even those sold through its own in-house auctions, said Frazier, who believes the clarification only applies to charities that use third-party auction houses.

Catherine Jun / The Detroit News