[Congressional Record (Bound Edition), Volume 154 (2008), Part 13]
[Extensions of Remarks]
[Pages 17906-17907]
[From the U.S. Government Publishing Office, www.gpo.gov]




    RESTORE BALANCE TO TAX TREATMENT OF CHARITABLE VEHICLE DONATIONS

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                        HON. WILLIAM D. DELAHUNT

                            of massachusetts

                    in the house of representatives

                        Thursday, July 31, 2008

  Mr. DELAHUNT. Madam Speaker, in 2004, the Congress enacted changes in 
the federal tax code intended to address real and perceived abuses 
related to charitable donations of vehicles. Those changes, while well-
intended, have had unanticipated and serious consequences. Over the 
last three years, charitable vehicle donations have plummeted. The 
steep decrease in revenue has forced many charities--in my state and 
across the country--to reduce services to their beneficiaries.
  The objectives of the 2004 changes were commendable. But the specific 
requirements have choked vehicle donations and the charities--and 
charitable services--which depend on them. Today I am introducing 
legislation to refine those changes in ways that restore better balance 
to this provision of the tax code and fulfills the original intent of 
Congress: to promote charitable donations.
  Before 2005, a taxpayer could deduct the fair market value (FMV) of 
vehicles donated to charity. Under Section 170 of Title 26 of the US 
Code, a donor could claim the FMV as determined by well-established 
used car pricing guides, as long as the FMV was under $5000. However, 
there was concern that some taxpayers were gaming the system by 
claiming excessive deductions; and that there was insufficient IRS 
oversight to detect or police these problems.
  In its FY2005 budget request, the Administration proposed reforming 
the rules governing vehicle donations by allowing a deduction only if 
the taxpayer obtained a qualified appraisal for the vehicle. However, 
the Congress rejected that proposal and went much further. The final 
version, included in the American Jobs Creation Act of 2004 (PL 108-
357), limited deductions over $500 to the actual proceeds of sale of 
the vehicle by the charity, regardless of appraised value. Only if the 
charity actually keeps and uses the car (rather than sells it for the 
resulting revenue) can the donor deduct its FMV.
  The rules took effect for tax year 2005. Today, a taxpayer with an 
older used car in poor condition can call many charities nationwide to 
have the vehicle towed at no cost and then claim a $500 deduction. 
However, a taxpayer with a newer-model car in good condition has no 
idea what deduction will be allowed until the vehicle is actually sold. 
That sale may not occur until months later, forcing the donor to roll 
the dice on the final deduction amount.
  During congressional debate, proponents argued that the changes would 
not add new burdens on vehicle donors or adversely impact charitable 
giving. To the contrary, evidence abounds that the changes have 
seriously disrupted charitable giving and forced many charities to 
curtail services to low-income beneficiaries.
  Two new government reports have concluded that charitable vehicle 
donations have plummeted since federal tax law changed four years ago. 
In March 2008, a Government Accountability Office (GAO) study of 10 
national charities over the two years after the law changed found that 
vehicle donations had dropped by 39 percent and that the resulting 
charitable revenues decreased by 25 percent. In May 2008, the Internal 
Revenue Service documented that the number of vehicles donated in 2005, 
the first year after the rules changed, decreased by 67 percent and 
that their value fell by over 80 percent.
  To feel informed enough to decide whether to donate a vehicle, 
taxpayers need a reasonable degree of certainty about the resulting 
deduction. Otherwise, alternatives such as a private sale or dealer 
trade-in become more attractive. This is clearly not what the Congress 
intended.
  The objective of the original 1986 car donation provision in the 
federal tax code was to encourage charitable donations. The 2004 
amendments have undermined that goal without improving IRS enforcement. 
As a result, charities and their beneficiaries are suffering.
  The change has affected not only the number of donations, but also 
the quality of donated vehicles. News articles from across the country 
reflect plummeting donation rates and the precipitous decline in 
revenue of non-profit community organizations. The news coverage itself 
has exacerbated the problem; potential donors concerned about the 
changes are discouraged further by the perception of the new burdens 
associated with the amended rules.
  Charities which had operated successful vehicle donation programs, 
either independently or though third-party fundraisers, have been hit 
hard. Those unable to cover overhead costs have eliminated vehicle 
donation programs and resolved to forego the resulting revenue stream. 
It appears that no charities have initiated or expanded vehicle 
donation programs over the past two years.
  Contrary to reassurances offered during the congressional debate, the 
tax law changes constituted a classic ``baby and bathwater'' overreach 
that has seriously impacted social services provided by non-profit 
groups across the country. Modest tax incentives are critical to 
sustaining charitable contributions, including in-kind gifts. The 
decline in vehicle donations since 2004 could be addressed by minor 
legislative refinements that would also address potential abuses and 
buttress IRS enforcement.
  Following are the text and technical analysis of my proposed 
legislation, which I view as a starting point for new congressional 
debate on this important issue.

[[Page 17907]]



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