Under the new rules, the charity will be required to provide to the donor -- and to the Internal Revenue Service -- an acknowledgment of the gift that includes the taxpayer identification number of the donor and the vehicle identification number. Further, if the charity sells the car without either making real use of it or doing serious repair or reconditioning work, it must include in the acknowledgment a certification that the car was sold in an arm's-length transaction between unrelated parties, and show the amount of money received for it. That amount will be the maximum allowable deduction for the donor.
Lawmakers specified that the IRS is to "construe strictly" the rules on use and repair. Minor cleaning and repairs, or brief incidental use of the vehicle by the charity, don't qualify, the report of the House-Senate conferees said.
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Even in cases in which the charity does use the vehicle, entitling the donor to a deduction of its fair market value, the acknowledgment "would have to show the condition of the car, a lot more detail other than just that you donated a car," said Martin Nissenbaum, a tax expert at Ernst & Young, the big CPA firm in New York.
Charities that fail to comply, or that provide false documentation, would be subject to new penalties.
The rules will make planning more difficult for donors, who "won't know what their deduction is going to be until some time after they make" their gift, said Harvey Berger of the national tax office of accountants Grant Thornton. That will make it tough for taxpayers to figure out whether they'd be better off selling the car or donating it, he said.
"I think it will cut down on some car donation programs," Berger said. The good ones will likely survive, though perhaps in smaller form, but "some of the shady ones will decide this isn't worth the trouble."
Berger and others noted that the rules apply for donations valued at $500 or more, and several wondered aloud if there will be a rash of "$499 cars" being donated next year.
In any case, Berger said, there will probably be a lot of advertising for last-chance donations between now and Dec. 31.
But donors should be cautious, even this year, several experts said. Although the old rules will apply, donors should be prepared to back up their deduction with more than a used-car price guide. Several suggested that taxpayers keep photographs of the car and perhaps a mechanic's statement to attest that it was in tip-top shape, if that's what they are claiming.
The bill also tightened up in some other charitable giving areas, though these will mostly affect corporations.
One that a few individuals might encounter is a new set of rules covering donations of "intellectual property" such as patents. The IRS has been worried that donors are overvaluing these sorts of gifts and thus gaining excessive deductions.
Under the new rules, a taxpayer may initially deduct only his "basis" -- essentially, his cost of developing or acquiring it -- when donating a patent. However, if the recipient is able to make money from the patent, then the donor will be entitled to a deduction equal to 100 percent of such income in the first two years, then decreasing percentages over the next 10 years.
The idea, apparently, is that many donated patents aren't worth much, but in the event that you donate one that does actually produce income, then you get a bigger write-off.