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Congress May Limit Used-Car Donations to Charities

April 15, 2004

Charities fear that potential donors may decide it’s not worth the hassle to donate used cars if Congress clamps down on inflated tax deductions, reported the Detroit News. Lawmakers started looking into the subject a year ago when government auditors discovered a wide margin between the proceeds earned by charities and the value of donated cars claimed on tax returns. Charities sometimes make a small percentage of a car’s estimated value. The margin occurs because charities typically sell donated cars at dealer auctions for wholesale prices. Donors calculate their tax deductions by estimating the car’s retail value, sometimes ignoring its condition and mileage. Congress and the Treasury Department want to narrow the margin, reported the Detroit News. Plans to limit tax deductions for donated cars have advanced in the House and Senate. In the House, lawmakers picked up a proposal in President Bush’s budget that would require donors either to have the vehicle appraised or use a valuation formula developed by the Treasury Department when figuring their tax deduction. In the Senate, proposed rules would require charities to send a letter to donors reporting the sale price. Donations of cars worth less than $500 could be deducted without a letter. Charities have concerns about parts of both proposals. “Significant social dollars would be lost, and there’s no way to replace those. People would be hurt,” said Earl Copus Jr., president of Melwood in Upper Marlboro, Md., which offers job training, employment, living assistance, and travel for the disabled. Senate Finance Committee Chairman Charles Grassley (R-Iowa), whose committee asked government auditors to study the car donation program, argues the proposed changes put little more burden on taxpayers or charities, reported the Detroit News.
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