Cash for Clunkers Slows Charity Donations? Um no, Try Again, Internal Revenue Service

In a perfect example of media confusing the issue, we have this winner from Reuters. This is why you should A) never believe what you read B) especially never believe what you read when it absolves your government of its sins.

"Clunkers" program slows car gifts to U.S. charities

The popular "cash-for-clunkers" program is boosting U.S. auto sales and manufacturing but is also slashing donations to charities that rely on gifts of cars to fund social programs, charity officials say.

Volunteers of America and other charities that receive tens of thousands of cars each year said such donations have quickly fallen up to 12 percent -- and fear a 25 percent drop eventually, or over $100 million -- as owners rush to trade gas guzzlers for new fuel-efficient models while federal rebates last.

"We started seeing it right away in July" when the program began, said Jim Hartman, vice president of vehicle donations at Volunteers of America, a nationwide charity. "It varies by market, but there's been an 11 to 12 percent drop compared with last year."

"The cars I'm seeing cashed in as clunkers, like older SUVs, are absolutely the typical donation to us," he said.
Um, no, actually. It's the IRS's fault. Well, technically, it's the IRS and fair value that are to blame.

As most tax preparers and CPAs should know (but the general population may not), car donation tax rules changed in 2004, allowing a deduction of up to $500 or fair market value of the car. Well fair value screws the girl trying to take a Blue Book deduction on the 1999 Nissan Altima she ran into the ground (I may or may not be familiar with having tried this in 2005).

Of course, how does one judge fair value in a delusional market?

I think we should ride out of this mess on GAAP, let the Fed pull out the funny money and get the market back to some version of rational before we start asking for fair value out of it. But I digress.

IR-2004-142, Nov. 30, 2004

WASHINGTON -- The Internal Revenue Service issued a consumer alert today to help taxpayers avoid potential pitfalls when they donate their automobiles to charities.

In addition, as taxpayers plan their charitable giving, donors should understand the way that the American Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles, boats and planes after Dec. 31, 2004.

Next year, if the claimed value of the donated motor vehicle, boat or plane exceeds $500 and the item is sold by the charitable organization, the taxpayer is limited to the gross proceeds from the sale.

Under the new rules, the charitable organization must provide an acknowledgement to the donor within 30 days of the sale stating the amount of gross proceeds. Alternatively, if the charity significantly uses or materially improves the vehicles, the charity must certify this intended use and duration and provide an acknowledgement to the donor within 30 days of the contribution. If the charity significantly uses or materially improves the vehicle, generally, the donor may deduct the vehicle’s market value.

So what happens when that Nissan fetches $100 for the charity?


Cash for Clunkers sucks. But it isn't fair to blame it for this.

Confess your sins, IRS. Taxgirl saw what you did there too and will certainly vouch for me. I don't particularly care for taxes but I've been in REG class with this dude for the last two weeks. No one else could possibly keep me awake during business law (bleh). I promise I'll go back to writing about the Fed when class is over next week. zzzzz

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.