GAO hits car donation disparity

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A General Accounting Office report released yesterday found big discrepancies between the dollar amounts many Americans claim as deductions for car donations on their tax returns and the money charities actually receive from the sales of the vehicles.

"The proceeds received by charities from vehicle donations were 5 percent or less of the value donors claimed as a deduction on their tax returns for the majority of the ... vehicle donations we tracked," the General Accounting Office, the investigative arm of Congress, said in its report that was requested by the top Republican and Democrat on the Senate Finance Committee.

Sen. Charles E. Grassley, Iowa Republican and committee chairman, and Sen. Max Baucus, Montana Democrat and ranking member, sought the report with an eye toward making changes in the law that would require taxpayers who donate cars -- as well as land, planes, boats, art and intellectual property -- to make more accurate valuations of the gifts on their tax forms.

On the car-donation front, one strategy receiving strong consideration would be to require donors to limit the value of their car gift to the amount a charity can sell it for.

"Right now, this is an area where no one is watching the henhouse," said Dean Zerbe, senior counsel for the Senate Finance Committee.

The GAO report estimates that in the 2000 tax year alone, "Vehicle donation deductions lowered taxpayers' income by $654 million.

"When you add in intellectual property, land and art, it adds up to billions of dollars [of tax revenues] that are lost year after year," Mr. Zerbe said in an interview.

He pointed out that taxpayers who value donated vehicles at $5,000 or more must provide an independent appraisal of its worth. But vehicles valued at less than $5,000 do not require this appraisal.

The report documented situations in which the owner of a donated 1986 Toyota 4-Runner claimed its value to be $3,950 on his income tax return. But the charity that received the sport utility vehicle sold it for $300 and netted only $5 from its sale.