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Government Provides Guidance on Vehicle Donations

(June 20, 2005) The Department of the Treasury and the Internal Revenue Service (IRS) have released information to assist charities and donors with contributions of vehicles.

Last year, Congress passed a provision that limits the deduction for vehicles to the actual sales price of the vehicle when sold by the charity and requires donors to get a timely acknowledgment from the charity in order to claim the deduction

However, Congress did provide some limited exceptions under which a donor may claim a fair market value deduction.

Fair Market Value Exceptions

If the charity makes a significant intervening use of a vehicle, such as regular use to deliver meals on wheels, the donor may deduct the full fair market value. The guidance explains what a significant intervening use may include.

Donors also can claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle -- not mere painting or cleaning.

The Treasury/IRS guidelines also include an additional exception to the sale price limit that was not included in the language passed by Congress. Donors can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

Determining Fair Market Value

The new guidance also explains how to determine fair market value if one of these three exceptions applies. Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party and dealer retail prices. The guidance provides that the fair market value for vehicle donation purposes will be no higher than the private-party price.

Congress also required a donor to substantiate a deduction with an acknowledgement from the charity that the deduction either reflects the sale price or that one of the three exceptions applies. Charities can be penalized for failure to provide a proper acknowledgement. The guidance explains the requirements for the content and the due dates for acknowledgements.

Government Seeking Comments

The Treasury Department and IRS have requested comments from interested parties on the guidelines and suggestions for future guidance. The comment period will be open for the next 90 days.

Comments should refer to Notice 2005-44 and be submitted by Sept. 1, 2005, to:

Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, Attn: CC:PA:LPD:PR, Room 5203

Alternatively, comments may be submitted electronically to: Notice.Comments@irscounsel.treas.gov.

All comments will be available for public inspection and copying.

A copy of the guidance in PDF format (22 pages) is available on the IRS website.

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