[Congressional Record (Bound Edition), Volume 155 (2009), Part 9]
[Extensions of Remarks]
[Pages 12059-12060]
[From the U.S. Government Publishing Office, www.gpo.gov]




    RESTORE BALANCE TO TAX TREATMENT OF CHARITABLE VEHICLE DONATIONS

                                 ______
                                 

                        HON. WILLIAM D. DELAHUNT

                            of massachusetts

                    in the house of representatives

                         Thursday, May 7, 2009

  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 four 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 adverse impact on charities is especially alarming in the context 
of the recession currently gripping the nation. The economic downturn 
has exacerbated demand for charitable services. But the changes enacted 
in 2004 are strangling the charitable contributions on which those 
services depend.
  I have introduced legislation to refine those changes in ways that 
restore better balance to this provision of the tax code and fulfill 
the original intent of Congress: to promote charitable donations. Every 
car and truck donated to charity, moreover, would help stimulate sales 
of new automobiles--at a fraction of the per-transaction cost of any 
auto bailout proposal.
  Before 2005, a taxpayer could deduct the fair market value (FMV) of 
vehicles donated to charity. Under Section 170 of Title 26 of the U.S. 
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 tax code 
changes included in the American Jobs Creation Act of 2004 (P.L. 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 recent government reports have concluded that charitable vehicle 
donations have dropped significantly 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 and to help 
charities develop new ways to generate contributions. 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 that 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 example of the baby being thrown 
out with the bathwater. This overreach has had serious ramifications 
for 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.

A bill to amend the Internal Revenue Code of 1986 to promote charitable 
                    donations of qualified vehicles.

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TREATMENT OF QUALIFIED VEHICLE DONATIONS.

       (a) In General.--Paragraph 12 of subsection (f) of section 
     170 of title 26 (relating to disallowance of deduction in 
     certain cases and special rules), as amended by this Act, is 
     amended to read as follows:
       ``(12) Contributions of used motor vehicles, boats, and 
     airplanes.--
       ``(A) In general.--In the case of a contribution of a 
     qualified vehicle paragraph (8) shall not apply and no 
     deduction shall be allowed under subsection (a) for such 
     contribution unless the taxpayer substantiates the 
     contribution by a contemporaneous written acknowledgement of 
     the contribution by the donee organization that meets the 
     requirements of subparagraph (B) and includes the 
     acknowledgement with the taxpayer's return of tax which 
     includes the deduction.
       ``(B) Content of acknowledgement.--An acknowledgement meets 
     the requirements of this subparagraph if it includes the 
     following information:
       ``(i) The name and taxpayer identification number of the 
     donor.
       ``(ii) The vehicle identification number or similar number.
       ``(iii) In the case of a qualified vehicle that is not sold 
     by the organization
       ``(I) a certification of the intended use or material 
     improvement of the vehicle and the intended duration of such 
     use, and

[[Page 12060]]

       ``(II) a certification that the vehicle would not be 
     transferred in exchange for money, other property, or 
     services before completion of such use or improvement, and
       ``(iv) In the case of any qualified vehicle the claimed 
     value of which does not exceed $2500--
       ``(I) the fair market value of the vehicle as determine in 
     accordance with regulations prescribed by the Secretary,
       ``(II) a statement that the deductible amount may not 
     exceed the fair market value of the vehicle, and
       ``(III) if the organization sells the vehicle without any 
     significant intervening use or material improvement a 
     certification that the vehicle was sold in an arm's length 
     transaction between unrelated parties.
       ``(v) In the case of any qualified vehicle the claimed 
     value of which exceeds $2500--
       ``(I) a qualified appraisal as defined in (E) of paragraph 
     (11) of this section,
       ``(II) a statement that the deductible amount may not 
     exceed the appraised value of the vehicle, and
       ``(III) if the organization sells the vehicle without any 
     significant intervening use or material improvement a 
     certification that the vehicle was sold in an arm's length 
     transaction between unrelated parties.
       ``(C) Contemporaneous.--For purposes of subparagraph (A), 
     an acknowledgement shall be considered to be contemporaneous 
     if the donee organization provides it within 30 days of the 
     contribution of the qualified vehicle.
       ``(D) Information to secretary.--A donee organization 
     required to provide an acknowledgement under this paragraph 
     shall provide to the Secretary the information contained in 
     the acknowledgement. Such information shall be provided at 
     such time and in such manner as the Secretary may prescribe.
       ``(E) Qualified vehicle.--For purposes of this paragraph, 
     the term `qualified vehicle' means any--
       ``(i) motor vehicle manufactured primarily for use on 
     public streets, roads, and highways,
       ``(ii) boat, or
       ``(iii) airplane.

     Such term shall not include any property which is described 
     in section 1221(a)(1).
       ``(F) Regulations or other guidance.--The Secretary shall 
     prescribe such regulations or other guidance as may be 
     necessary to carry out the purposes of this paragraph.''
       (b) Penalty for Fraudulent Acknowledgments.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by this Act, 
     is amended by inserting after section 6719 the following new 
     section:

     ``SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO 
                   DONATIONS OF MOTOR VEHICLES, BOATS, AND 
                   AIRPLANES.

       ``Any donee organization required under section 
     170(f)(12)(A) to furnish a contemporaneous written 
     acknowledgment to a donor which knowingly furnishes a false 
     or fraudulent acknowledgment, or which knowingly fails to 
     furnish such acknowledgment in the manner, at the time, and 
     showing the information required under section 170(f)(12), or 
     regulations prescribed thereunder, shall for each such act, 
     or for each such failure, be subject to a penalty equal to--
       ``(1) the product of the highest rate of tax specified in 
     section 1 and the claimed value of the vehicle, or
       ``(2) $5,000.''
       (2) Conforming amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by this Act, is 
     amended by inserting after the item relating to section 6719 
     the following new item:

     ``SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO 
                   DONATIONS OF MOTOR VEHICLES, BOATS, AND 
                   AIRPLANES.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2006.

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