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Taxpayers Still Taking Unsubstantiated Deductions for Vehicle Contributions

(Oct. 15, 2007) The U.S. Treasury Department estimates that over 100,000 individuals claimed unsubstantiated motor vehicle donations totaling more than $200 million in 2005.

Congress passed a law in 2004 that attempted to prevent taxpayers from inflating the value of their charitable deductions for gifts of cars, trucks, boats and other vehicles. The law limits a donor’s deduction to the amount the charity received for the vehicle, not the fair market value of the vehicle.

Despite the law, an audit prepared by the Treasury Inspector General for Tax Administration reveals extensive concerns by about the effectiveness of the Internal Revenue Service (IRS) in implementing and overseeing the law. The audit recommends that the IRS develop a comprehensive outreach plan on the reporting requirements for affected taxpayers and tax practitioners.

In addition, to address tax returns that don't have the required substantiation for charitable contributions of motor vehicles, the IRS should:

  1. lower the dollar threshold to ensure most of the returns claiming unsubstantiated deductions are addressed. (Under current law, only individuals who claim deductions for donated motor vehicles exceeding $500 must provide the required forms.)
  2. correspond with taxpayers to obtain missing Forms 8283 and supporting documentation.
  3. create a special code for tax returns that don't have the required forms so that IRS examiners will be alerted to those individuals who need to be contacted.

However, the IRS has apparently disagreed with some of the recommendations. The agency does not believe that any sort of education campaign is needed, and it will not lower the dollar threshold to require donors to submit substantiation. It has indicated that it will continue to correspond with taxpayers missing the required forms and will create a new code for tax returns that don’t have the appropriate substantiation.

A copy of the report on the audit is available on the Department of the Treasury website.

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