1. Archive

Congress drives charities into red tape tangle

Let's hear it for those champions of fiscal responsibility, the U.S. Congress, for swooping down like fiscal hawks upon a bunch of tax cheats who are threatening the very stability of our nation's economy.

Sure, our country has run up 10-digit deficits as far as the eye can see, we're in debt up to our eyebrows to Communist China, and our tax code encourages corporations to set up offshore accounts so Fortune 500 companies pay less in taxes than, say, a Wal-Mart greeter.

Refusing to be distracted by such piddly problems, Congress last year zeroed in on a much more serious crisis: People who donate vehicles to charities and then claim a tax break.

The problem seemed to be that some people were overstating the value of the vehicles they donated and claiming too large a tax deduction. Just think of the devastation this practice has wreaked on our tax structure. Why, the impact could run into the hundreds, maybe even thousands, of dollars nationwide!

Never mind that a small percentage of taxpayers even bother to itemize their returns. And only a tiny fraction of people donate cars to charity. And not all of them ask for the tax deduction.

Or that only an estimated 3 percent of charities nationwide even have vehicle donation programs. And those that do have better things to do with their limited resources than to handle the extra paperwork burden and rules that Congress has now imposed.

Or that the people who rely on these charitable organizations to keep themselves and their families alive will be the ultimate victims. The new rules may well discourage donations, which would mean less money for those charities that sell the donated cars. For those groups that allow their clients to use the vehicles, it could be a crippling blow.

"This is going to hurt," said DuWayne Sipper, executive director of the Path rescue shelter in Beverly Hills. The full impact will be felt as the year rolls along and the new rules becomes more widely known. But the outlook is not promising.

Perhaps more than any other social service agency in Citrus County, the Path depends on donated vehicles for clients of its homeless shelters. As these men and women get back on their feet and return to the working world, they need a way to get to their jobs, especially in a county that does not offer a full-fledged mass transit system.

This year, Sipper said, the Path received about a dozen donated cars, all of them "experienced" as they say in the used-car trade. You and I might call them clunkers, but to someone whose alternative is the shoe-leather express, they are golden chariots.

Sipper described a recent addition to the Path family, a Dodge Colt of indeterminate vintage. "It's ugly," he said. "It has rust holes. The driver's door doesn't close all the way. It looks terrible. But it runs great."

That's all that matters to the women at the shelter, he said, "A little coupe that doesn't leak very much, is good on gas and has a reliable engine." Some of the men at the shelter, plus a number of Path supporters around the county, pitch in to do what repairs they can.

The new rules won't prohibit these vehicle donations, just make them less advantageous for donors. Under the old tax rules, donors could deduct the vehicle's entire fair market value. Now, if the value is more than $500 and the charity sells the car, the donor can deduct only the gross proceeds that the charity receives from the sale.

Say a person last year donated a car with a Kelley Blue Book value of $1,000. Their deduction would be $1,000. Now, if the charity sells that same donated car for $200, the deduction is only $200.

Since few of the donated cars sell at anything close to their Blue Book value, that means lower deductions. Plus, the charities must now contact the donor within 30 days of the sale to tell them the sale amount.

If the charity keeps the vehicle or fixes it up, the charity must let the donor know about the changes so the donor can deduct a higher market value. All of which means more paperwork and headaches for charities that already have their hands full.

Some charities simply have the donated vehicles sold at auction and pocket the proceeds. But federal officials complain that some middlemen are abusing the system by giving only a small slice of the pie to the charities. This, along with the exaggerated deduction amounts claimed by some donors, spurred the swift actions of Congress.

What are these changes going to mean to groups like the Path, which sometimes sells its donated vehicles to other members of the working poor? Or that count on such donations to stay afloat and to perform community services that would otherwise fall to the government?

Sipper won't know until probably this time next year, but the signs are not good.

"The government should be doing everything it can to help us because we save it so much money," he said. "Once again, they are cutting off their noses to spite their face."