Of U.S. charities  with revenues of $100,000 or more, we estimate that 2.7 percent, or about  4,300 charities nationwide, have vehicle donation programs. Small Percentage of Taxpayers Claimed Deductions for Vehicle Donations

Our analysis of IRS tax return data for tax year 2000 showed that a small  percentage of taxpayers claimed deductions for vehicle donations. The  733,000 returns represented about 17 percent of the 4.4 million returns  filed with noncash contribution deductions over $500. We estimate that  vehicle donation deductions lowered taxpayers’ income tax liability by an  estimated $654 million. Other important reasons  cited in the surveys for donating vehicles were to help a charitable cause  and to easily dispose of an unwanted vehicle. Charities Receive Less than Donors Claimed as the Value of the Vehicle for the 54 Donations We Reviewed

Although proceeds from vehicle donations are a welcomed source of  revenue, it was not a crucial source of income for the majority of the  charities we reviewed. Based on information from charities we spoke with,  this difference is due in part to donated vehicles being often sold at auto  auctions at wholesale prices, and processing expenses and third-party fees  reducing the amount of proceeds charities receive. Revenue to Charities from Vehicle Donations Varied

The annual net proceeds from vehicle donations for 2002 reported by the  charities we interviewed ranged from as little as $1,000 for 2 vehicles  donated to a senior center, to over $8.8 million for 1 national charity that  received over 70,000 vehicles. California is the only state that collects data on the proceeds  received by charities from vehicle donation programs. However, since we did  not have additional information, such as the vehicle’s condition and  mileage, we could not determine whether the reported valuations claimed  by donors accurately reflected fair market value. Results of National Research Program and Donated Property Task Force May Lead to More Noncash Contribution Compliance Activities

While more compliance resources are being devoted to higher priority  audit issues such as abusive tax shelters and high-income nonfilers, IRS’s  National Research Program is to provide data on compliance problems  associated with noncash contributions, including deductions for donated  vehicles. In July 2002, the task force developed several draft  recommendations for improving IRS’s oversight of donated property  programs and deductions. In  addition, a number of nongovernmental sources offer charities similar  advice. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine: (1) the number of charities with vehicle  donation programs, and the number of taxpayers claiming deductions for  vehicle donations; (2) the vehicle donation process; (3) proceeds received  by charities from vehicle donations to what donors claim for vehicle  donation deductions; (4) the Internal Revenue Service’s (IRS) and state  compliance activities directed at vehicle donations and incidents of  noncompliance; and (5) guidance available to taxpayers and charities to  help them make informed decisions regarding vehicle donations.
Why GAO Did This Study

Donating a vehicle to charity enables a donor to support a charitable cause, dispose of an unwanted vehicle, and receive a tax benefit. More charities are turning to vehicle donation programs as a means for raising funds. As a result, our objectives were to: (1) determine the number of charities with vehicle donation programs, and the number of taxpayers claiming deductions for vehicle donations; (2) compare the proceeds received by charities from vehicle donations to what donors claimed for those deductions; and (3) describe related Internal Revenue Service (IRS) and state compliance activities.

What GAO Found

An estimated 4,300 charities have vehicle donation programs, based on a GAO survey of 157,500 charities with revenue of $100,000 or more. Taxpayers claimed deductions for donated vehicles on about 733,000 of the 4.4 million tax year 2000 returns filed with noncash deductions over $500, lowering taxpayer liability by an estimated $654 million. For the charities surveyed, proceeds from vehicle donations ranged from $1,000 for one charity, to $8.8 million for another. However, proceeds generally constituted a small share of total charity revenue for the majority of charities GAO reviewed. In addition, for two-thirds of the 54 specific vehicle donations GAO examined, charities received 5 percent or less of the value donors claimed as deductions on their tax return. Differences in proceeds received by the charity and value claimed by a taxpayer were due in part, to vehicles being sold at auctions at wholesale prices, and proceeds being reduced by vehicle processing and fundraising costs. Due to a lack of available data on the condition of donated vehicles, GAO could not determine whether taxpayers appropriately valued their vehicles when claiming associated tax deductions. The IRS has some activities designed to detect noncompliant claims for noncash deductions, including vehicle donations. However, the IRS has not pursued potential leads from these activities because tax revenue yields are less than other potential noncompliance cases, such as abusive tax shelters. IRS's ongoing National Research Program study may provide information on how to deal with donated vehicle compliance issues. Also, an IRS task force drafted recommendations for improving IRS's oversight of charities' donated property programs. State officials have filed legal actions in a number of cases involving problems with vehicle donation programs, such as an individual soliciting vehicle donations for fictitious charities.