Many churches have had cars donated to them. Often, the donor is a member of the congregation who wants the car to be transferred by the church to a designated individual (such as a staff member, or needy person). The donor’s objectives in many cases are (1) to claim a charitable contribution deduction for the value of the car, and (2) to specify the recipient of the car.
Whenever a car is donated to a church, there are three issues that church treasurers should understand:
- Can the donation be treated as a charitable contribution (and receipted by the church)?
- What substantiation requirements must be met for the donor to claim a charitable contribution?
- Should title to the car be transferred to the church?
Each of these issues is addressed in a new publication released by the IRS (Publication 4302, A Charity’s Guide to Car Donations). Here is how the publication addresses the three questions mentioned above:
Publication 4302 cautions that “in order to be deductible, a donation must be made to a charity that has full control and discretion over the disposition or use of the donation.” This suggests that persons who donate a car to their church with the stipulation that it be transferred to a designated individual are not making a charitable contribution. On the other hand, the donation of a car can be treated as charitable contribution if the donor makes no designation regarding its intended use, or stipulates that it be used in furtherance of one of the exempt purposes of the church (such as assisting the needy).
Some prior IRS rulings and court decisions have suggested that designated donations can be treated as charitable contributions so long as the designation is a mere “expression of interest” in a particular individual rather than a “commitment or understanding” that the donation will be used for the specified individual. This is an aggressive position, however, that should not be followed without the advice of a tax professional.
Can a church transfer a donated car to the senior pastor or some other staff member? Publication 4301 answers this question as follows: “A charity must operate exclusively to further the charity’s exempt purposes. A charity must not operate a car donation program in a manner that improperly benefits private parties. For example, a charity should not sell cars on favorable terms to individuals such as board members.”
substantiating the contribution
Publication 4302 provides the following information on substantiating the donation of a car:
A donor must file Form 8283, Noncash Charitable Contributions, to report information about noncash charitable contributions if deductions for all noncash gifts during the year exceed $500. For most property donations for which the deduction claimed is greater than $5,000, the donor must obtain an appraisal. A qualified appraiser must complete and sign Section B of Form 8283, called the appraisal summary; and an authorized official of the charity must also complete a portion of the form and sign it. The donor must give the charity a copy of Section B. A charity required to sign Form 8283 for receipt of a car must file Form 8282, Donee Information return, if it sells or otherwise disposes of the car within two years after the date it received the car. This form must be filed within 125 days after the charity disposes of the car. This form requires the charity to identify the donor, the charity, and the amount the charity received upon disposition of the car. The charity must give the donor a copy of the completed Form 8282 ….
A donor cannot deduct any single charitable contribution valued at $250 or more unless the donor obtains a contemporaneous written acknowledgment of the contribution from the charity ….
Some church treasurers who are unfamiliar with these substantiation requirements erroneously assume that they can simply use a donated car’s “blue book” value to determine the true valuation of the car. Publication 4302 warns that this is not acceptable: “Some fundraisers mistakenly claim that donors can, in all cases, deduct the full value of their cars as found in a used car guide (such as blue book value). A used car guide may be a good starting point to value a car, but donors and charities should exercise caution. The IRS will only allow a deduction for the fair market value of the car, which may be substantially less than the blue book value.”
Publication 4302 also warns charities that they may be subject to a penalty if they help a donor overstate the value of a charitable contribution deduction.
title requirements under state law
Publication 4302 makes the following comments about titling of donated cars: (1) Charities must comply with state law requirements relating to titling of vehicles and transfers of title. (2) Generally, state charity officials ask the donor to transfer the car title to the charity, to make a copy of the title transfer, and to notify the state motor vehicle administration by updating the information on the donor’s car registration about any sale or transfer. (3) The donor should remove the license plates, unless state law requires otherwise. This will help avoid liability problems after the car is transferred.
This article first appeared in Church Treasurer Alert, August 2004.