In recent years, Congress and the IRS have tightened rules around the valuation of donated vehicles to ensure accuracy and compliance. These changes, enacted in 2004, introduced stringent IRS substantiation requirements for vehicle donations. Here’s what churches need to know:
1. When the Church Sells a Donated Vehicle Without Significant Use or Alteration
If the church sells the vehicle without using or altering it, the following steps are required:
- Provide the donor with a written acknowledgment within 30 days of the sale, including:
- The donor’s name and Social Security number
- Date of contribution
- Vehicle Identification Number (VIN)
- Date of sale
- Certification that the vehicle was sold in an arm’s-length transaction
- Gross proceeds from the sale
- A statement that the deductible amount may not exceed the gross proceeds
- A description and estimate of any goods or services provided in exchange (or confirmation of intangible religious benefits, if applicable)
- Submit the same information to the IRS by February 28 of the following year using IRS Form 1098-C. This form may also be used for the donor’s acknowledgment.
2. When the Church Sells the Vehicle Below Market Value or Transfers It to a Needy Individual
When the church sells the vehicle at a significantly reduced price or transfers it to a needy individual to further its exempt purpose:
- Provide the donor with a written acknowledgment within 30 days, including:
- The donor’s name and Social Security number
- Date of contribution
- Vehicle Identification Number (VIN)
- A certification of the vehicle’s sale or transfer to a needy individual
- Confirmation that the sale or transfer aligns with the church’s mission of assisting the underprivileged
- A description and estimate of any goods or services provided (or confirmation of intangible religious benefits)
- Submit the same details to the IRS by February 28 of the following year using IRS Form 1098-C.
3. When the Church Significantly Uses or Materially Improves the Vehicle
If the church significantly uses or improves the vehicle before selling it, the following is required:
- Provide the donor with a written acknowledgment within 30 days, detailing:
- The donor’s name and Social Security number
- Date of contribution
- Vehicle Identification Number (VIN)
- A description of the intended use or improvement and its duration
- A certification that the vehicle will not be sold before its use or improvement
- A description and estimate of any goods or services provided (or confirmation of intangible religious benefits)
- Submit the same details to the IRS by February 28 of the following year using IRS Form 1098-C.
Additional Notes
- A qualified appraisal is required for deductions exceeding $5,000 if the deduction is not limited to the gross proceeds from the vehicle’s sale.
Conclusions
Noncompliance with Form 1098-C reporting requirements is a significant issue. To avoid complications, church leaders should familiarize themselves with these guidelines whenever vehicle donations are involved. Proper documentation and timely submission ensure compliance and protect the interests of both the donor and the church.
FAQs
What is Form 1098-C?
Form 1098-C is the IRS form used by charities to report vehicle donations, including key details like the vehicle’s sale price or intended use.
What happens if the vehicle is sold below market value?
If the church sells the vehicle at a reduced price to help a needy individual, this must be documented and reported to both the donor and the IRS.
What if the vehicle donation exceeds $5,000?
A qualified appraisal is required for deductions exceeding $5,000, unless the deduction is based on gross proceeds from the sale.
What is the deadline for submitting Form 1098-C?
Form 1098-C must be submitted to the IRS by February 28 of the year following the donation.
