Charities, small biz defend car donations

By Josephine Hearn

Charities and small automobile businesses are hoping to put the brakes on a Senate proposal to limit abuses of charitable car donations.

As many as 1.2 million vehicles are donated to charities each year, resulting in millions in revenue for the cash-strapped organizations and feeding a network of auction houses and vehicle call centers that handle the cars. In recent years, however, both Congress and the administration have raised concerns that taxpayers may be abusing the donations by claiming on their tax returns that their vehicles are worth more than they actually are.

Sen. Chuck Grassley (R-Iowa), chairman of the Finance Committee, recently added a provision to the corporate tax bill that would rein in abuses of vehicle donations by making taxpayers use the actual amount their car sold for at auction as the fair market value on their tax returns.

Most charities do not use the donated vehicles themselves. Instead, the charities pass them on to auction houses and then use the proceeds of the vehicle sales to bolster their revenues.

The tax bill, along with the vehicle donation provision, passed the Senate last week.

But many of the charities and small businesses that rely on car donations have begun to raise concerns that the language in the Grassley bill is too harsh and could put the pace of vehicle donations in the slow lane.

They are advocating a number of alternate proposals that would not use the auction price of the car but would instead offer more guidance for taxpayers on what the fair market value of their vehicle is.

“They are trying to kill a fly with a sledgehammer,” said Tom Roberts, an official from Melwood, a charity that helps developmentally disabled adults. Melwood, which frequently advertises for donations on popular Washington radio stations, is a member of Charities Advocating Responsible Solutions (CARS), a group of mostly small and mid-sized charities that have organized to fight the Grassley measure.

A Senate Finance Committee aide said, however, that the Grassley proposal was a “clean way of dealing with the situation [that] ensures that charities will get no less than they're getting now.”

The aide said the real problem was with many of the auto businesses that handle the donated vehicles. “The current legislation doesn't go far enough in terms of dealing with situations where the middlemen keep most of the proceeds.” The Finance Committee “would very much consider looking at” that issue, the aide said.

The CARS coalition distributed a report to Capitol Hill recently outlining a compromise proposal that would require donors to use the “private party” value in guidebooks to come up with a fair price for the car. There are a number of guidebooks that taxpayers and auto-industry professionals use to value cars. One of the best known is the Kelley Blue Book.

The proposal would also provide taxpayers with detailed receipts that would describe the donated car and its condition.

Larger charities have become vocal on the issue as well. A group of five public health groups sent a letter to all House members Monday expressing concerns about the Senate provision and putting forth suggestions similar to those of the CARS coalition.

“The changes passed by the Senate … would be so burdensome to taxpayers and charities alike that it would severely undermine our programs … by greatly discouraging donations,” wrote representatives from the American Heart Association, the American Lung Association, the National Kidney Foundation (NKF) and the American Cancer Society.

The NKF received more than $17 million in gross revenues from car donations last year, said Troy Zimmerman, director of government relations. It was the group's single largest fundraiser.

Perhaps the most detailed compromise proposal has come from a coalition of auction houses, towing companies and vehicle processors called the Charitable Donation Support Coalition (CDSC).

After surveying their member companies, the coalition concluded that the greatest abuse of donations occurs with older cars and that charities make far more money off of newer-car donations. The coalition's proposal would limit the value of a car older than 12 years to $750, unless an appraiser determines a higher value. It would also require charities to provide a receipt listing the book value of the car and the amounts that were lopped off that price for a vehicle in poor condition or with high mileage.

“The donors who are gaming the system are those who take full book value for an old clunker that's been lying in the driveway for a few years,” said Tom Crane, president of Tri State Auto Auctions in Crestwood, Ill., which is a member of the CDSC Coalition “The charities take those older vehicles to foster goodwill in the community, even though they may clear as little as $5 for their efforts. … People donating newer, more valuable cars are the lifeblood of most vehicle donation
programs.”

Small auto businesses and charities have been taking their case to the Hill in recent weeks, meeting primarily with members of the House Ways and Means Committee.
Since the Senate has already passed its bill, they are hoping to get more favorable language included in the House corporate tax bill, which passed the committee last fall but has yet to receive floor consideration.

The various groups have hired a number of lobbying firms. The CDSC Coalition tapped John McMickle at Winston & Strawn. The CARS Coalition hired Bob Horn at Patton Boggs and Jim Wiltraut at Buchanan Ingersoll. The health groups have mainly been using their own in-house lobbyists on the issue. However the American Lung Association has hired the Downey McGrath Group.

Source: "The Hill, www.hillnews.com/business/051904_charities.aspx", 5/19/04