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entitled 'Vehicle Donations: Benefits to Charities and Donors, but 
Limited Program Oversight' which was released on December 12, 2003.

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Report to the Committee on Finance, U.S. Senate:

United States General Accounting Office:

GAO:

November 2003:

VEHICLE DONATIONS:

Benefits to Charities and Donors, but Limited Program Oversight:

GAO-04-73:

GAO Highlights:

Highlights of GAO-04-73 a report to the Committee on Finance, U.S. 
Senate

Why GAO Did This Study:

Donating a vehicle to charity enables a donor to support a charitable 
cause, dispose of an unwanted vehicle, and receive a tax benefit. 
More charities are turning to vehicle donation programs as a means 
for raising funds. As a result, our objectives were to: (1) determine 
the number of charities with vehicle donation programs, and the 
number of taxpayers claiming deductions for vehicle donations; (2) 
compare the proceeds received by charities from vehicle donations to 
what donors claimed for those deductions; and (3) describe related 
Internal Revenue Service (IRS) and state compliance activities.

What GAO Found:

An estimated 4,300 charities have vehicle donation programs, based on 
a GAO survey of 157,500 charities with revenue of $100,000 or more. 
Taxpayers claimed deductions for donated vehicles on about 733,000 of 
the 4.4 million tax year 2000 returns filed with noncash deductions 
over $500, lowering taxpayer liability by an estimated $654 million. 

For the charities surveyed, proceeds from vehicle donations ranged 
from $1,000 for one charity, to $8.8 million for another. However, 
proceeds generally constituted a small share of total charity revenue 
for the majority of charities GAO reviewed. In addition, for two-
thirds of the 54 specific vehicle donations GAO examined, charities 
received 5 percent or less of the value donors claimed as deductions 
on their tax return. Differences in proceeds received by the charity 
and value claimed by a taxpayer were due in part, to vehicles being 
sold at auctions at wholesale prices, and proceeds being reduced by 
vehicle processing and fundraising costs. Due to a lack of available 
data on the condition of donated vehicles, GAO could not determine 
whether taxpayers appropriately valued their vehicles when claiming 
associated tax deductions.

The IRS has some activities designed to detect noncompliant claims 
for noncash deductions, including vehicle donations. However, the IRS 
has not pursued potential leads from these activities because tax 
revenue yields are less than other potential noncompliance cases, 
such as abusive tax shelters. IRSís ongoing National Research Program 
study may provide information on how to deal with donated vehicle 
compliance issues. Also, an IRS task force drafted recommendations 
for improving IRSís oversight of charitiesí donated property 
programs. State officials have filed legal actions in a number of 
cases involving problems with vehicle donation programs, such as an 
individual soliciting vehicle donations for fictitious charities. 

What GAO Recommends:

In conjunction with its ongoing National Research Program study, 
which is to be completed in December 2004, GAO recommended that the 
IRS assess: (1) the merits of its compliance program for generating 
audit leads on taxpayers that may have overstated their noncash 
charitable contribution deductions and (2) whether forms charities 
submit when disposing of donated property should be recorded and 
retained. 

IRS agreed with the recommendations and stated that the actions it 
will take to implement them will depend on the results of its review 
of the level of noncompliance in reporting noncash contributions.

www.gao.gov/cgi-bin/getrpt?GAO-04-73

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Cathleen A. Berrick 
at (202) 512-3404 or berrickc@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Few Charities Reported Having Vehicle Donation Programs, and Small 
Percentage of Taxpayers Claim Deductions for Donated Vehicles:

Vehicle Donation Programs Varied for the Charities We Reviewed, but 
Most Used Third-Party Agents:

Charities Receive Less than Donors Claimed as the Value of the Vehicle 
for the 54 Donations We Reviewed:

IRS and States Compliance Activities Directed at Donated Vehicle Issues 
Have Identified Cases of Noncompliance:

Guidance Is Available to Donors and Charities Regarding Vehicle 
Donations:

Conclusion:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: Sample Claims of Vehicle Donation Advertisements:

Appendix III: Selected Vehicle Donations Tracked from Donation to 
Taxpayer Claim for Charitable Deduction:

Appendix IV: Vehicle Donation Guidance:

Appendix V: Comments from the Internal Revenue Service:

Appendix VI: Staff Acknowledgments:

Acknowledgments:

Tables:

Table 1: Examples of Organizations That Do or Do Not Qualify to Receive 
Deductible Charitable Contributions:

Table 2: Data Sources Used to Address Objectives:

Table 3: Vehicle Donation Claims Related to Tax Deductions (by medium):

Table 4: Vehicle Donations Tracked from Donation to Taxpayer Claim for 
Charitable Deduction--54 Vehicles:

Table 5: Sources of Guidance in Making Vehicle Donation Decisions:

Figures:

Figure 1: States That Require Registration of Charitable Soliciting 
Organizations, Including the District of Columbia:

Figure 2: Number of Sampled Charities Starting Vehicle Donation 
Programs from 1978-2002:

Figure 3: Percentage of Dollar Amount of Deductions for Noncash 
Charitable Contributions over $500 by Type of Contributions, Tax Year 
2000:

Figure 4: Vehicle Donation Process:

Figure 5: Example of Vehicle Solicitation on a Truck:

Figure 6: Some Charities Accept Vehicles in Poor Condition:

Figure 7: Example of a Vehicle Donation:

Figure 8: Charity Proceeds as a Percent of Donor Claims in 54 Selected 
Vehicle Donations:

Figure 9: Most Common Claims in Newspaper, Radio, and Internet 
Advertisements Reviewed:

Figure 10: Transcript of Actual Radio Advertisement for Vehicle 
Donations:

United States General Accounting Office:

Washington, DC 20548:

November 14, 2003:

The Honorable Charles Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate:

Some charities are turning to vehicle donation programs as a means for 
raising funds. While these donations create an important source of 
revenue for a number of charities, questions have arisen regarding the 
role third-party agents[Footnote 1] play in the vehicle donation 
process, as well as the amount of proceeds that are actually received 
by charities from vehicle donations. Others have asked whether 
taxpayers know enough about vehicle donation programs to make informed 
decisions about donating their vehicles, and are claiming appropriate 
tax deductions.

Given these questions, this report expands on our preliminary 
observations on vehicle donation programs in our April 1, 2003, 
testimony before the Senate Finance Committee[Footnote 2] and discusses 
(1) the number of charities with vehicle donation programs and the 
number of taxpayers claiming deductions for vehicle donations; (2) the 
vehicle donation process; (3) proceeds received by charities from 
vehicle donations compared to what donors claim for vehicle donation 
deductions; (4) Internal Revenue Service (IRS) and state compliance 
activities directed at vehicle donations, and the results of these 
activities; and (5) guidance available to taxpayers and charities to 
help them make informed decisions regarding vehicle donations.

To satisfy these objectives, we relied on two sources of nationally 
representative information and several anecdotal sources of 
information. To determine the number of charities that have vehicle 
donation programs, we conducted a national telephone survey of a 
statistically representative sample of charities. Second, to determine 
how many taxpayers claimed vehicle donation deductions, we analyzed a 
statistically representative sample of tax year 2000 tax returns (the 
latest data then available). We also obtained anecdotal information on 
compliance activities from officials at the IRS and 11 state attorneys 
general and secretary of state offices, and information on vehicle 
donation operations from a pool of 65 charities, six third-party 
agents, and related interest groups. Finally, we tracked a judgmental 
sample of 54 donated vehicles to compare the amount of proceeds 
charities received from vehicle sales and the amount claimed as 
deductions on donors' tax returns. Appendix I contains a detailed 
description of our objectives, scope, and methodology. Our work was 
conducted between October 2002 and October 2003 in accordance with 
generally accepted government auditing standards.

Results in Brief:

An estimated 4,300 U.S. charities with an annual revenue of $100,000 or 
more are operating vehicle donation programs, or less than 3 percent of 
the 157,500 charities with income at or exceeding this level. Based on 
our estimates, tax deductions for donated vehicles were claimed on 
about 733,000 tax returns for tax year 2000, or an estimated 0.6 
percent of the 129 million individual returns filed that year. These 
deductions lowered taxpayers' income tax liability by an estimated $654 
million.

The vehicle donation process generally involves four steps: (1) 
advertising and fielding donors telephone calls regarding donating 
their vehicles; (2) taking possession of vehicles, usually by tow 
truck; (3) disposing of vehicles, most often through auto auctions; and 
(4) distributing the proceeds from vehicle sales between charities and 
organizations involved in the process. Some charities operate their 
vehicle donation programs in-house; however, most of the charities we 
interviewed relied on third-party agents to conduct some or all 
components of their programs for a share of the proceeds from vehicle 
sales.

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 54 vehicle donations we tracked. Based 
on discussions with charities and third-party agents, we identified two 
factors that contributed to this difference. First, donated vehicles 
are often sold at auctions for wholesale prices rather than at the 
price a donor might expect if selling the vehicle to a private party. 
Second, vehicle processing and fund-raising costs are subtracted from 
gross vehicle sales revenue, further reducing the proceeds charities 
receive from vehicle sales. We could not determine whether individuals 
claiming deductions for donated vehicles accurately assessed the fair 
market value of their vehicle due to a lack of available data on the 
condition of the vehicles donated.

IRS and states compliance activities directed at donated vehicles 
issues have been limited. IRS has one compliance program that generates 
audit leads on taxpayers that may have overstated their tax deductions 
for noncash contributions, which include vehicle donations, but due to 
higher priority compliance demands, IRS has not audited any of the 
leads during the last 2 fiscal years. Also, IRS data on its returns 
processing procedures for disallowing deductions for inappropriately 
claimed noncash contributions on returns with relatively high 
deductions show that few deductions are disallowed. The IRS may be able 
to assess compliance problems associated with noncash deductions, 
including donated vehicles, with information it obtains from audits 
being conducted as part of its National Research Program. An IRS 
donated property task force developed recommendations, which could lead 
to better oversight of charities' donation programs, such as recording 
and retaining charities' donated property disposal forms to determine 
whether charities filed the forms and whether the forms are accurate. 
In addition, several of the officials we contacted in 11 states said 
they uncovered problems with vehicle donation programs, including an 
instance in which an organization posed as a charity to receive 
donations, a third-party agent inappropriately kept vehicle donation 
proceeds, and individuals solicited vehicle donations for fictitious 
charities.

The IRS, state officials, and other organizations we contacted have 
provided guidance to taxpayers and charities to help them donate or 
accept vehicles. Guidance to taxpayers has included such things as 
helping them identify legitimate, well-run charities; avoid personal 
liability for their donated vehicles; claim appropriate tax deductions; 
and protect themselves from fraudulent marketing solicitations. 
Guidance to charities helps charities select and manage professional 
fund-raisers and suggested documentation to maintain for donated 
vehicles.

We are recommending that IRS assess the merits of its program for 
generating audit leads on taxpayers that may have overstated their 
noncash charitable contributions, and whether forms charities submit 
when disposing of donated property should be recorded and retained. IRS 
agreed with our recommendations and stated that decisions on actions to 
be taken will depend on the results of its review of the level of 
noncompliance in reporting noncash contributions.

Background:

The tax code allows individuals and businesses to make noncash 
contributions (e.g., vehicles, paintings, used clothing, and household 
goods) to qualifying charities by allowing taxpayers to claim 
deductions for their donations on their tax returns. However, not all 
organizations are granted nonprofit or tax-exempt status by the IRS 
that qualifies taxpayers for tax deductions for items donated to them. 
Table 1 provides examples of organizations that do and do not qualify 
donors for noncash deductions, including vehicle donations.

Table 1: Examples of Organizations That Do or Do Not Qualify to Receive 
Deductible Charitable Contributions:

Qualified for tax deductions: Charitable organizations (e.g. religious, 
educational, scientific, charitable literary, cruelty prevention, and 
some amateur sports competitions); Federal, state, and local 
governments; Domestic fraternal societies and war veterans' groups; 
Certain nonprofit cemetery groups; Childcare organizations; Not 
qualified for tax deductions: Civic leagues, social welfare 
organizations, and local employee associations; Political groups or 
candidates; Labor, agricultural, or horticultural organizations; 
Social and recreational clubs; Farmer's Cooperative associations.

Source: Adapted from IRS Publication 557 Tax Exempt Status for Your 
Organization, July 2001.

[End of table]

IRS guidance instructs donors to establish the value for their donation 
based on its "fair market value" for donated vehicles, that is, what 
the item would sell for on the market, taking into account its 
condition, including mileage in the case of vehicle donations. As is 
the case for all noncash contributions, the IRS does not require donors 
to obtain an independent appraisal for a vehicle's value unless they 
claim over $5,000 for the donated property. IRS guidance suggests that 
donors use used car guides, comparable sales, and other sources to 
assist in establishing the fair market value for their donated 
vehicles.

Regulatory oversight over charities and their vehicle donation programs 
is diffused, shared between the IRS and state agencies. The IRS decides 
which charities are granted nonprofit status and whether the charity 
meets tax-exempt requirements and complies with federal laws. Many 
states require charities soliciting within the states to 
register[Footnote 3] with the state attorney general's office or the 
secretary of state's office. Figure 1 shows the 39 states and the 
District of Columbia that require charitable organizations to register 
with state charity offices. In general, states prohibit unregistered 
organizations from soliciting for donations in their state. Some state 
agencies also review vehicle donation advertisements in response to 
consumer complaints, or when they discover a charity is soliciting for 
donations in their state without being registered.

Figure 1: States That Require Registration of Charitable Soliciting 
Organizations, Including the District of Columbia:

[See PDF for image]

[End of figure]

In addition to oversight by the IRS and state agencies, some private 
sector organizations develop standards to promote ethical charitable 
practices and collect information on charitable organizations. Charity 
"watchdog" organizations, such as the Better Business Bureau's Wise 
Giving Alliance, Council of Better Business Bureaus, American Institute 
of Philanthropy, Association of Fund-Raising Professionals, and the 
Independent Sector, provide insight to the public on various fund-
raising activities. These organizations collect information on 
charitable organizations and develop standards to promote ethical 
practices. They disseminate these standards in an effort to "inspire 
public confidence." These standards include the voluntary disclosure of 
an organization's activities, finances, fundraising practices, and 
governance.

Few Charities Reported Having Vehicle Donation Programs, and Small 
Percentage of Taxpayers Claim Deductions for Donated Vehicles:

Based on our national survey of charities, few charities reported 
having a vehicle donation program. Correspondingly, a small percentage 
of taxpayers claimed tax deductions for donated vehicles.

Few Charities Reported Having Vehicle Donation Programs:

Despite frequent advertisements soliciting vehicle donations to 
charities, few charities reported having vehicle donation programs. Of 
U.S. charities with revenues of $100,000 or more, we estimate that 2.7 
percent, or about 4,300 charities nationwide, have vehicle donation 
programs.[Footnote 4] This projection is based on our survey of 600 
charities, of which 16 reported having a vehicle donation program.

While the small number of charities with vehicle donation programs does 
not allow us to make national estimates, we found that most of the 16 
vehicle donation programs identified by the national survey were 
relatively new programs, as shown in figure 2. Only 4 of the 16 
charities had vehicle donation programs prior to 1998.

Figure 2: Number of Sampled Charities Starting Vehicle Donation 
Programs from 1978-2002:

[See PDF for image]

[End of figure]

Small Percentage of Taxpayers Claimed Deductions for Vehicle Donations:

Our analysis of IRS tax return data for tax year 2000 showed that a 
small percentage of taxpayers claimed deductions for vehicle donations. 
We reviewed a representative sample of taxpayer returns[Footnote 5] 
that claimed noncash contributions of over $500 for tax year 2000. We 
found that of the 129 million returns filed that year, an estimated 0.6 
percent,[Footnote 6] or 733,000 returns, contained tax deductions for 
vehicle donations. The 733,000 returns represented about 17 
percent[Footnote 7] of the 4.4 million returns filed with noncash 
contribution deductions over $500. We estimate that vehicle donation 
deductions lowered taxpayers' income tax liability by an estimated $654 
million.[Footnote 8] The dollar amount of vehicle donation deductions 
totaled about 6 percent of the noncash contributions claimed,[Footnote 
9] while stocks and thrift store donations accounted for most of the 
deductions for noncash charitable contributions over $500, as shown in 
figure 3.

Figure 3: Percentage of Dollar Amount of Deductions for Noncash 
Charitable Contributions over $500 by Type of Contributions, Tax Year 
2000:

[See PDF for image]

Note: Totals do not add to 100% due to rounding. Sampling errors 
associated with these estimates are large. The 95 percent confidence 
intervals are: stock donation 39-86%, thrift store donation 8-38%; 
property donation 3-19%, and vehicle donation 2-15%.

[End of figure]

While few taxpayers claim tax deductions for donated vehicles, 2 
charities we contacted conducted surveys[Footnote 10] of their donors 
and found that the ability to claim a tax deduction was one of the 
important reasons individuals donated their vehicles to charity. Other 
important reasons cited in the surveys for donating vehicles were to 
help a charitable cause and to easily dispose of an unwanted vehicle.

Vehicle Donation Programs Varied for the Charities We Reviewed, but 
Most Used Third-Party Agents:

The vehicle donation process, for the charities we reviewed generally 
consisted of four steps: (1) solicitation/donor contact, (2) vehicle 
pick-up, (3) vehicle sale, and (4) distribution of proceeds. Forty-five 
of the 65 charities we interviewed reported using third-party agents 
for some or all of these steps rather than relying on in-house 
resources, and some had arrangements with more than one agent. About 
half of the 45 charities used third-party agents to run the entire 
program, while other charities used a third-party agent for only 
certain functions. The vehicle donation process is depicted in figure 
4.

Figure 4: Vehicle Donation Process:

[See PDF for image]

[End of figure]

Step 1 - Solicitation/donor contact. The vehicle donation process 
generally begins with solicitations for donated vehicles through 
advertisements. Vehicle donations may be solicited directly by 
charities, third-party agents, or both, depending on the agreement 
between the charities and third-party agents. Of the 45 charities we 
interviewed that discussed their advertising practices, 26 reported 
that advertising was handled solely by the charity. Some third-party 
agents solicited donated vehicles for several charities using a common 
advertisement. Some of the most common mediums for vehicle donation 
advertisements include the radio, newspapers, and the 
Internet.[Footnote 11] (For Web version of this report, click here to 
hear a radio vehicle donation advertisement, or see app. II for the 
transcript.[Hyperlink, http://www.gao.gov/media/audio/donatecar.mp3] 
Vehicle donations are also solicited through advertisements on 
billboards, truck banners (see fig. 5), and television, as well as in 
newsletters and even on small paper bags.

Figure 5: Example of Vehicle Solicitation on a Truck:

[See PDF for image]

[End of figure]

Also during this step, donors initiate contact with the charity and or 
third-party agent to donate their vehicle. Either charities or third-
party agents may take the initial call from a potential donor, asking 
the donor questions that may be used to screen vehicles, such as the 
vehicle's make, year, and condition, and if the donor has the title to 
the vehicle. Twenty-four of the 65 charities we interviewed reported 
that they accepted donor calls in-house, while 23 said that they used 
third-party agents to accept calls or shared this 
responsibility.[Footnote 12] Some charities or their agents limited the 
vehicles they accepted to those they anticipated would produce a profit 
after towing and other expenses. However, some charities reported 
accepting vehicles regardless of condition, as suggested in figure 6. 
One charity official stated that accepting vehicles with little value 
was a way of generating goodwill for future donations.

Figure 6: Some Charities Accept Vehicles in Poor Condition:

[See PDF for image]

[End of figure]

Step 2 - Vehicle pickup. After the donor makes the initial call to 
donate a vehicle, arrangements are made to pick up the vehicle and 
deliver it to wherever it will be stored until it is sold. Vehicles are 
generally towed, according to a third-party agent, due to safety and 
liability concerns. A majority of charities we contacted used third-
party agents to pick up vehicles. Once vehicles are picked up, donors 
are generally provided with a receipt to document the donation for tax 
purposes. At this time, the charity or third-party agent also obtains 
the title of the vehicle from the donor.[Footnote 13] Some charities 
may provide the donor with state-required forms (e.g., release of 
liability), or references for establishing the tax deductible value of 
their donated vehicle (e.g., car guides or IRS guidance).

Step 3 - Vehicle sale. Once collected, donated vehicles are most often 
sold. Charities or third-party agents typically sell donated vehicles 
through auctions to auto dealers, to the public, or to vehicle 
salvagers. The majority of charities we contacted said that charities 
do not handle the selling of vehicles themselves, but instead rely on a 
third-party agent. Charities and third-party agents said that they 
generally sold donated vehicles at auto auctions because (1) auctions 
allow high volume of auto sales and (2) charities do not have the 
resources, such as staff, storage space, or licenses required to sell 
vehicles themselves. Of the 65 charities we interviewed, 43 charity 
officials said they sold all of their donated vehicles, while officials 
at 16 charities said they used some donated vehicles for clients, 
charity staff, or other purposes.[Footnote 14] For example, 1 charity 
official said that the charity used donated vehicles for student 
training for a community college auto course.

Step 4 - Distribution of proceeds. After vehicles have been liquidated, 
the proceeds are distributed. Charities with in-house vehicle donation 
programs keep proceeds that remain after deducting costs associated 
with processing the vehicles. When charities use third-party agents, 
the financial agreement between the charity and the third-party agents 
dictates the proceeds that the charity and fund-raiser will receive 
from the sale.

In addition to the in-house and third-party arrangements, we identified 
some variations in how vehicle donation programs operate. In one case, 
a consortium of 14 charities jointly runs a vehicle donation program in 
conjunction with a wrecking yard. The charities share in oversight of 
the operations, such as inspecting donated vehicles and monitoring 
vehicle donation reports. Donors can select 1 charity to receive the 
proceeds, or if no charity is designated, proceeds are split among 
members of the consortium equally. In another case, 1 large charity 
runs a national vehicle donation program and serves regional offices as 
a third-party agent would, charging its regions vehicle processing 
costs. However, some of the charity's affiliates choose other third-
party agents that are not part of the national program to run their 
program. Finally, in still another case, a large charity runs a 
national program and serves charity affiliates, but also has a 
nonprofit vehicle donation program for other smaller charities.

Charities Receive Less than Donors Claimed as the Value of the Vehicle 
for the 54 Donations We Reviewed:

Although proceeds from vehicle donations are a welcomed source of 
revenue, it was not a crucial source of income for the majority of the 
charities we reviewed. The proceeds charities received from vehicle 
donations varied in the 54 cases we tracked, but were generally 
considerably less than the amount donors claimed on their tax returns 
for the donated vehicles. Based on information from charities we spoke 
with, this difference is due in part to donated vehicles being often 
sold at auto auctions at wholesale prices, and processing expenses and 
third-party fees reducing the amount of proceeds charities receive. We 
could not verify the accuracy of taxpayer claims regarding the value of 
their donated vehicle.

Revenue to Charities from Vehicle Donations Varied:

The annual net proceeds from vehicle donations for 2002 reported by the 
charities we interviewed ranged from as little as $1,000 for 2 vehicles 
donated to a senior center, to over $8.8 million for 1 national charity 
that received over 70,000 vehicles. The charities considered the 
proceeds received as a welcomed, but rarely crucial source of income to 
sustain their operations. Although the dollar amount received from 
vehicle donations was over $1 million for several charities we spoke 
with, for many, the revenue was a small share of total charity revenue. 
Charity proceeds constituted less than 2 percent of the total annual 
budget for 15 of the 30 charities providing budget information; 
however, 2 of the charities stated that vehicle donation proceeds 
provided 90 percent or more of their annual revenue. Many of the 
charities we interviewed stated that their vehicle donation program 
provided benefits beyond revenue by providing an expanded donor base 
and name recognition for the charity.

Charity Proceeds Much Less than Values Claimed by Donors in Cases We 
Tracked:

In the 54 specific vehicle donations we tracked, charity proceeds from 
vehicle donations were much less than the value deducted by donors on 
their tax returns. Based on charity and the third-party agent we 
contacted, two factors contributed to this difference: (1) vehicles are 
often sold at auto auctions for salvage or at wholesale prices, which 
are typically lower than prices that would be received if the donor 
sold the vehicle themselves and (2) processing costs and fees are 
deducted from gross sales revenue, further reducing charity proceeds.

Figure 7 illustrates the amount a charity received from 1 of the 54 
vehicle donations we tracked. In this case, a 1983 GMC Jimmy truck was 
donated in 2001 to a charity whose vehicle donation program is operated 
by a third-party agent. The gross sale price for the truck, which sold 
at an auction, was $375. After deducting third-party and advertising 
expenses, net proceeds from the vehicle sale totaled $62.00. This 
amount was split 50/50 between the third-party agent and charity, 
leaving the charity with $31 from the vehicle donation. The taxpayer 
claimed a $2,400 tax deduction for the donated vehicle on his/her tax 
return, based on the fair market value of the vehicle listed in a used 
car guidebook. Appendix III details the vehicle donation transactions 
for all 54 tracked cases.

Figure 7: Example of a Vehicle Donation:

[See PDF for image]

[End of figure]

Donated vehicles are often sold at auto auctions for lower prices than 
what a seller might receive if the vehicle were sold to a private 
party. For the 54 donated vehicles we tracked, sale prices for donated 
vehicles ranged from 1 percent to 70 percent of donor tax deduction 
claims, and over half of the cases were 10 percent or less of what 
donors' claimed. (See app. III) As one third-party agent stated, it is 
unfair to compare auction sale prices for donated vehicles to deduction 
claims because most donated vehicles are sold at auctions that cater 
predominantly to wholesalers who then resell the vehicle at higher 
prices. Of the 59 charities we contacted during our review that said 
they sell some or all donated vehicles, 42 used auctions to dispose of 
the vehicles.

Another reason for the difference between the amounts deducted by 
donors for donated vehicles and the proceeds charities receive from 
vehicle sales is that sales proceeds are reduced by vehicle processing 
costs, such as towing, advertising, program administration, and third-
party agent fees. California is the only state that collects data on 
the proceeds received by charities from vehicle donation 
programs.[Footnote 15] According to the California Attorney General's 
records, 145 charities using third-party agents who had filed the 
required financial reports received approximately $16 million, or 35 
percent of the $45.8 million raised from reported donated vehicle 
sales, during 2001. The amount of proceeds these charities received in 
California ranged from 2 percent to 80 percent of proceeds after third-
party costs were deducted.

Taking both the lower sales price and deductions for processing costs 
into account, the proceeds received by charities from donated vehicles 
were much lower than the donor-claimed value for the vehicles in the 54 
donated vehicle cases we tracked. Charities received between 0 and 54 
percent of the value claimed by donors,[Footnote 16] with most 
receiving 5 percent or less, as shown in figure 8. For some vehicle 
donation sales, charities receive no proceeds after the costs of 
vehicle donations are deducted. For 6 of the 54 donated vehicles we 
tracked, the processing costs exceeded the sales price for the vehicle 
(see app. III). For charities using third-party agents, whether the 
loss is absorbed by the third-party agent or deducted from charity 
proceeds from another higher value donated vehicle depends on the 
agreement between the parties.

Figure 8: Charity Proceeds as a Percent of Donor Claims in 54 Selected 
Vehicle Donations:

[See PDF for image]

[End of figure]

Because third-party agents and other donated vehicle processing costs 
vary among charities, comparing net vehicle donation proceeds between 
charities can be misleading. One third-party agent said that programs 
claiming a high percent of proceeds as profit are not including their 
full costs, that is, they are only counting towing costs and may not 
include space, advertising, or staff costs. Similarly, 1 charity 
managing its own vehicle donation program stated that its proceeds may 
be lower than some other charities, but they are accurately capturing 
the true program costs while others may not be. Proceeds also differ 
based on different agreements between charities and third-party agents 
for paying for the third-party's services. Of the 45 charities we 
contacted during our review that reported using third-party agents, 20 
said third parties were paid a percentage of net proceeds for their 
vehicle donation services, many splitting the net proceeds 50/50. Other 
charities reported paying third-party agents a flat fee per 
vehicle[Footnote 17] or had some other arrangement, such as paying for 
towing expenses incurred by third-party agents.

A number of charities interviewed had little insight into vehicle 
donation processing costs incurred by third-party agents because they 
received limited, or in a few cases, no information on charges for 
vehicle donations. Although most charities reported receiving an 
itemized list of revenue and costs of donated vehicles from their 
third-party agents, the detail was not always provided. For example, 1 
charity received an itemized list of each vehicle sold that listed all 
costs under "cost of sales" except for the third-party fee. Another 
received an itemized list of sold vehicles with all costs under "tow 
fees" and "expenses." Thirteen of the charities we contacted reported 
that they received a check from a third-party agent accepting vehicles 
for the charity without their knowledge, and only 4 of the 13 said that 
information on processing costs was provided. One well-known charity 
with its own vehicle donation program stated that they repeatedly 
contacted two third-party agents to stop them from accepting vehicles 
on their behalf. The charity estimated that in 1 year one of the third 
parties had deducted approximately $25,000 from proceeds to the charity 
over what it would have cost the charity itself to process the donated 
vehicles.

Limited Data to Assess Taxpayer Accuracy in Estimating Donated 
Vehicle's Fair Market Value:

An additional factor that may explain the difference between the 
proceeds charities receive from vehicle donation sales and what donors 
claim as the value of the donated vehicle may be an inaccurate 
assessment by donors of the vehicle's value. Although many charities we 
spoke with said they try to limit vehicle acceptance to those in 
running condition, some charities accept vehicles in poor condition. 
Charities stated that a number of the vehicles donated are sold for 
scrap, and some said donor claims about vehicle value might be 
inflated.

We could not determine in the 54 cases we tracked whether donors 
appropriately claimed deductions for donated vehicles. IRS guidance 
suggests that taxpayers consider using used car guides when estimating 
the fair market value for donated vehicles, while also considering the 
vehicle's condition and mileage.[Footnote 18] Of the 54 cases, 25 
assessments were based on nationally recognized used car 
guides.[Footnote 19] However, since we did not have additional 
information, such as the vehicle's condition and mileage, we could not 
determine whether the reported valuations claimed by donors accurately 
reflected fair market value.

IRS and States Compliance Activities Directed at Donated Vehicle Issues 
Have Identified Cases of Noncompliance:

The IRS has one compliance program that produces audit leads on 
potentially overstated noncash contributions, but it does not follow up 
on these leads. According to IRS officials, it does not audit cases 
with potentially overstated noncash contributions because it has higher 
priority compliance issues to address. Also, IRS data on its returns 
processing procedures that are directed to disallowing deductions for 
inappropriately claimed noncash contributions show that a small percent 
of returns are subject to these procedures and that few deductions are 
disallowed. As part of its National Research Program, IRS plans to 
gather information on noncash contribution compliance issues, which 
could provide it with data to determine how best to address noncash 
contribution compliance issues. An IRS donated property task force has 
drafted several recommendations that could lead to more emphasis being 
directed to vehicle donation programs and deductions.

Data from the 11 states we contacted were limited regarding 
noncompliance by charities and third-party agents involved with vehicle 
donation programs. However, several states' agencies have identified 
and initiated legal actions against individuals and organizations that 
have not complied with laws or regulations related to vehicle 
donations. These include instances in which an organization posed as a 
charity to receive donations, a third party inappropriately kept 
vehicle donation proceeds, and a charity was not following state 
requirements for processing vehicles.

IRS's Compliance Activities Results in Few Disallowed Deductions for 
Noncash Contributions:

One of IRS's compliance programs is designed to detect individual 
taxpayers who may overstate noncash contributions on their tax returns, 
including donated vehicles. However, due to higher priority demands for 
determining compliance with tax laws, IRS has not been following up on 
leads of potential noncompliance that are generated from this program. 
Under this program, about two full-time equivalent employees at IRS's 
Ogden Submission Processing Center are used to compare the proceeds 
charities received from donated property shown on property disposal 
forms (Form 8282 Donee Information Return[Footnote 20]) with the 
amounts claimed by taxpayers on their tax returns. If there is a wide 
discrepancy between the charity's revenues for the property and the 
amount claimed by the taxpayer on their tax return, the case is 
referred to field offices for possible audit.

An Ogden Campus official estimated that on average about 20,000 Form 
8282s are received annually, and that 4,000 to 5,000 individual tax 
returns are reviewed to determine whether they should be audited. An 
Ogden official estimated that the cost to retrieve a tax return from 
IRS files is between $100 and $150. Ogden officials stated that they do 
not track the number of cases that are referred for possible audit or 
the types of donated property involved in the cases, but estimated that 
30 percent to 40 percent of the returns reviewed are referred.[Footnote 
21] An IRS official estimated that most referred cases related to 
donated land or boats, which generally have higher potential tax 
assessments than do vehicles. According to our analysis of the IRS 
audit data,[Footnote 22] none of the returns that were referred during 
fiscal years 2001 and 2002 were audited. IRS officials stated that the 
returns were not audited because the potential tax assessment yield 
from these cases was substantially smaller than from other types of 
compliance issues handled in the field.

IRS also established processing procedures for returns to identify and 
disallow deductions for noncash contributions either when taxpayers 
claim noncash contributions over a certain amount or when they do not 
attach required Form 8283, Noncash Charitable Contributions [Footnote 
23] to their returns. These processing procedures cover relatively few 
noncash contribution deductions. For example, we estimate that for tax 
year 2000 returns, IRS's returns processing threshold for these 
deductions would account for about 1 percent of the returns where 
noncash contributions of over $500 were claimed. According to IRS, 
returns that meet the threshold are given a special code and are 
reviewed by the examination staff to determine whether they have audit 
potential. Returns with audit potential are put in the audit inventory 
for possible audit selection by field agents. IRS found that these 
returns were not being selected for audit because field agents had 
other higher priority work. IRS expects this higher priority work to 
continue into the foreseeable future, and as a result, beginning in 
January 2004, returns processing staff will discontinue coding these 
returns for review by examination staff. IRS does not have data on the 
number of noncash contribution deductions that have been disallowed 
because of missing Form 8283s, but IRS officials estimate that few were 
disallowed. IRS also has returns processing procedures to identify and 
disallow noncash donations to individuals or nonqualifying 
organizations, such as political organizations. According to IRS, in 
2002 it disallowed noncash contributions of about $21.8 million on 154 
tax returns for donations made to individuals and nonqualifying 
organizations.[Footnote 24]

In addition to the above compliance activities that focus on taxpayers' 
deductions for donated vehicles and other types of noncash 
contributions, IRS's Exempt Organization Division has an examination 
program that focuses on whether charities meet tax-exempt requirements 
and complies with federal law, such as those governing the use of funds 
for a charitable purpose rather than private gain. IRS had little 
information on whether its examinations identified compliance problems 
with charities operating vehicle donation programs. At the time of our 
review, IRS officials informed us that IRS had seven vehicle donation 
program examinations in progress and had completed two cases. According 
to an IRS official, in one recent case, IRS revoked the exemption 
status for one Florida organization whose charitable purpose was to 
provide research, education, and technical training on the marine 
environment. The charity raised funds through the solicitation and sale 
of boats. IRS found that the organization's charitable activities were 
insubstantial, and that private parties were benefiting from the 
substantial economic benefit of the organization's activities.

Results of National Research Program and Donated Property Task Force 
May Lead to More Noncash Contribution Compliance Activities:

While more compliance resources are being devoted to higher priority 
audit issues such as abusive tax shelters and high-income nonfilers, 
IRS's National Research Program is to provide data on compliance 
problems associated with noncash contributions, including deductions 
for donated vehicles. Under the program, the IRS randomly selected 
about 47,000 tax year 2001 returns to determine whether taxpayers 
complied with statutory income, expense, and tax reporting 
requirements. Returns with noncash contributions, including donated 
vehicles, could be subject to audit to verify donation claims. Once 
this project is completed in December 2004, IRS plans to assess 
individuals' compliance related to deductions for noncash contributions 
and determine what actions are needed to help ensure proper reporting 
in this area.

In 2001, IRS established a donated property task force that examined 
various issues relating to such topics as property appraisals and 
valuations and coordination of compliance activities between various 
IRS organizational units. In July 2002, the task force developed 
several draft recommendations for improving IRS's oversight of donated 
property programs and deductions. The recommendations included revising 
Form 8283 to add a separate category for donations of motor vehicles on 
the portion of the form that identifies the type of property donated. 
Another recommendation made was to establish procedures to ensure that 
IRS records and maintains copies of Form 8282s that are filed with the 
Ogden Submission Processing Center. The task force noted that without 
such procedures, IRS could not verify the accuracy of the forms or 
determine whether charities filed them. The IRS's audit procedures 
instruct auditors to determine whether charities submit required Form 
8282 when disposing of donated vehicles. Auditors may assess penalties 
if they find that the charity did not submit required Forms 
8282.[Footnote 25] However, determining whether charities filed the 
forms may be difficult because the forms are destroyed if they are not 
used in Ogden's noncash contribution audit referral program discussed 
above. According to IRS officials, at the time of our review, IRS had 
not taken action on this recommendation.

State Agencies Have Identified Compliance Problems with Donated Vehicle 
Programs:

Many states oversee charities to protect the public, and 39 states and 
the District of Columbia require charities to register with the state 
attorney general or the secretary of state offices. States have an 
interest in whether charitable fund-raising is fraudulent and whether 
charities are using funds to meet the charitable purpose for which they 
were created. We contacted 11 state attorney general offices or 
secretaries of state to identify information related to vehicle 
donation programs. Only 1 state reported having data to identify 
charities with vehicle donation programs; however, several said that 
they would investigate a charity vehicle donation program if they 
received complaints from the public. As discussed in the following 
items, several of these states uncovered problems with vehicle donation 
programs, including instances in which an organization posed as a 
charity to receive donations, third-party agents inappropriately kept 
vehicle donation proceeds, a charity was not following state 
requirements in processing vehicles, and individuals solicited vehicle 
donations for fictitious charities.

* In Massachusetts, a for-profit company representing itself as a 
charity solicited cars through newspaper ads leading potential donors 
to believe that the organization was a charity and that all, or a 
substantial portion of the proceeds would go directly to providing 
counseling to children and parents in Massachusetts. In May 2002, 
Massachusetts brought and won an enforcement action in which the 
company's president agreed with state officials to cease all further 
activity related to the car donation operation.

* Connecticut officials filed suit in July 2003 against a used auto 
dealership and a bogus charity that was created by the dealership's 
owner. Vehicles were solicited, supposedly to help abused and abandoned 
animals, but virtually all of the proceeds were retained by the auto 
dealership, which maintained one checking account for both 
organizations, according to state officials.

* Ohio's Attorney General filed a complaint in 2003 against a nonprofit 
organization that solicited over 800 vehicles in the name of donor 
designated charities, but at least $258,000 in vehicle proceeds was not 
provided to the designated charities, according to the complaint.

* The California Attorney General's office filed a civil action against 
the incorporator of a nonprofit that solicited vehicles for charity, 
but there was never a charitable program, only a used car lot. The 
Attorney General's office estimated that over $1 million was raised by 
the operation, none of which benefited charity. Criminal charges 
against the defendant resulted in a 5-year jail sentence.

* In a case filed in June 2003, the California Attorney General's 
office filed a case against a nonprofit organization selling donated 
vehicles to the public that had not met California's safety 
requirements. Some vehicles sold for export to locations such as Belize 
and Mexico, which do not require the same state safety standards, were 
not actually exported.

* An indictment filed in a U.S. District court in October 2002, charges 
that defendants established over 100 toll-free numbers with sound-alike 
charity names, such as the National Mental Health Association, Cancer 
Society, or National Diabetes Association. According to the case 
filing, potential donors were fraudulently told that the sound-alike 
organizations were the national charities whose names they approximated 
or were affiliated with nationally known charities; however, according 
to the case records, the defendants kept all proceeds.

Guidance Is Available to Donors and Charities Regarding Vehicle 
Donations:

A number of government and consumer organizations provide guidance to 
donors to assist them in making informed decisions about donating their 
vehicles. Guidance is also available to assist charities in accepting 
noncash contributions and in selecting, hiring, and managing third-
party agents.

Donor Guidance for Donating Vehicles:

Charitable donors in general, including those that donate their 
vehicles, can rely on guidance available from the federal government 
and other sources to ensure that they make informed donations. For 
example, IRS publishes guidance on claiming deductions for donations, 
and establishing fair market value for items donated. In addition, a 
Federal Trade Commission-led initiative highlights legal actions taken 
against individuals and organizations that engage in phony 
philanthropic activities, and provides tips on how to recognize and 
avoid fraudulent solicitations. Some states also offer guidance for 
potential donors and may have financial information on specific 
charities. A number of nongovernmental sources offer donors similar 
advice. For example, the Better Business Bureau's Wise Giving Alliance, 
Guidestar, Charity Navigator, and the American Institute of 
Philanthropy offer tips for charitable giving or information on 
specific charities.

Appendix IV lists specific sources for donor guidance.

The guidance generally identifies steps donors should take when 
donating vehicles and claiming associated tax deductions. These steps 
are listed as follows:

* Verify that the recipient organization is a tax-exempt charity. 
Churches, synagogues, temples, mosques, and governments are not 
required to apply for this exemption in order to be qualified.

* Determine whether the charity is properly registered with the state 
government agency that regulates charities. The state regulatory agency 
is generally the state attorney general's office or the secretary of 
state.

* Ask questions about how the donated vehicle will be used to determine 
whether it will be used as intended. Such questions include: Will the 
vehicle be fixed up and given to the poor and needy? Will it be resold 
and, if so, what share of the proceeds will the charity receive?

* Itemize deductions in order to receive a tax benefit from the 
donation. The decision to itemize should be determined by whether total 
itemized deductions are greater than the standard deduction.

* Deduct only the fair market value of the vehicle. The fair market 
value takes into account many factors, including the vehicle's 
condition, and can be substantially different from the value listed in 
used car guides.

* Document the charitable contribution deduction. IRS Publication 526 
identifies requirements for the types of receipts taxpayers must obtain 
and the forms they must file.

* Follow state law regarding the car titles and license plates. 
Generally, the donor should ensure that the title of the vehicle is 
transferred to the charity's name by contacting the state department of 
motor vehicles, and keep a copy of the title transfer. Donors are also 
advised to remove the vehicle's license plate if allowed by the state.

Guidance to Charities:

Some guidance is also available to charities with vehicle donation 
programs regarding accepting noncash contributions and hiring a third-
party agent for fund-raising purposes. For example, IRS Publication 
1771, Charitable Contributions, Substantiation, and Disclosure 
Requirements, explain federal law for organizations that receive tax-
deductible contributions. The IRS also plans to publish, by March 31, 
2004, a brochure advising charities on how to avoid problems raised by 
vehicle donation programs. State guidance to charities we reviewed was 
generally not specific to vehicle donation programs, but rather 
provided general guidelines for selecting, hiring, and managing third-
party agents. In addition, a number of nongovernmental sources offer 
charities similar advice. The Better Business Bureau, for example, 
publishes standards for charities in areas such as fund-raising 
activities, and issuing informational materials to donors. Appendix IV 
lists specific sources for charitable guidance.

Some of the general guidance provided to charities that are relevant to 
donation programs are listed as follows.

* Consult and adhere to IRS's publications explaining federal law for 
organizations that receive tax-deductible contributions, and review 
IRS's annual Exempt Organizations Implementing Guidelines.

* Comparison shop for fund-raising agents, insist on a written 
contract, and do not relinquish control of a program to the fund-
raiser.

* Follow standards published by various nongovernmental sources for 
governance, oversight, fund-raising activities, and issuing 
informational materials.

Conclusion:

IRS will not have data on whether taxpayers are appropriately claiming 
tax deductions for noncash contributions, including donated vehicles, 
until it completes its National Research Program study at the end of 
2004. In the meantime, IRS is using resources to produce audit leads on 
overstated noncash contributions that are not being audited because of 
higher priority compliance demands. To determine whether these 
resources could be used more productively, IRS could assess the merits 
of the noncash contribution compliance program to determine whether it 
could be modified to take advantage of the leads that are generated, 
such as auditing taxpayers through correspondence instead of sending 
them to field offices.

The IRS has audit procedures that instruct auditors to assess penalties 
against charities that do not file the required Form 8282 when they 
dispose of property. However, as reported by its donated property task 
force, IRS does not have a way of verifying whether charities file the 
required Form 8282 or whether forms that are filed are accurate. The 
task force's draft recommendation to maintain and record Form 8282 is 
worth considering. This recommendation was made in July 2002, and has 
not been acted upon.

Recommendations for Executive Action:

In conjunction with IRS's ongoing National Research Program study, 
which is to be completed in December 2004, we recommend that the 
Commissioner of the Internal Revenue assess (1) whether the Ogden 
compliance program should be modified to take advantage of the leads 
generated by the program and (2) the feasibility and usefulness of 
maintaining and recording the receipt of Form 8282 as recommended by 
IRS's donated property task force.

Agency Comments and Our Evaluation:

We received written comments on a draft of this report from the 
Commissioner of Internal Revenue (see app. V). The Commissioner agreed 
with our recommendations and identified some alternatives and actions 
that IRS is considering to ensure compliance by charities with 
reporting requirements.

With regard to our recommendation that IRS assess its compliance 
program for generating audit leads on taxpayers that may have 
overstated their noncash contributions, the Commissioner stated that 
IRS actions related to the compliance program will be based on its 
review of the level of noncompliance in reporting noncash 
contributions. The Commissioner also agreed with our second 
recommendation to consider whether the Form 8282s that charities submit 
when disposing of donated property should be recorded and retained. He 
stated that decisions on the handling of the forms would be made in 
conjunction with decisions on the first recommendation and with other 
changes IRS has underway, particularly the redesign of the Form 990. 
IRS is considering changing the Form 990 to include information on the 
filing of Form 8282 as an alternative to retaining the Form 8282.

The Commissioner noted that some steps have already been taken to 
improve the reporting of vehicle donation programs, such as the 
revision of Form 990 filing instructions for 2003 to provide 
organizations with an example of a vehicle donation, and other actions 
noted in our report.

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after the date of this report. We will then send copies of this report 
to the Secretary of the Treasury; the Commissioner of Internal Revenue; 
the Director, Office of Management and Budget; and other interested 
parties. We will also make copies available to others on request. The 
report is also available on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions on this report, please contact 
me at (202) 512-8777 or Ralph Block at (415) 904-2150. Key contributors 
to the report are listed in appendix VI.

Cathleen A. Berrick, Director, Homeland Security and Justice Issues:

Signed by Cathleen A. Berrick: 

[End of section]

Appendix I: Objectives, Scope, and Methodology:

Our objectives were to determine: (1) the number of charities with 
vehicle donation programs, and the number of taxpayers claiming 
deductions for vehicle donations; (2) the vehicle donation process; (3) 
proceeds received by charities from vehicle donations to what donors 
claim for vehicle donation deductions; (4) the Internal Revenue 
Service's (IRS) and state compliance activities directed at vehicle 
donations and incidents of noncompliance; and (5) guidance available to 
taxpayers and charities to help them make informed decisions regarding 
vehicle donations. To satisfy these objectives, we relied on two 
sources of nationally representative information and several anecdotal 
sources of information. Table 2 summarizes the primary data sources 
used to address each of the objectives.

Table 2: Data Sources Used to Address Objectives:

Objectives: (1)Number of vehicle donation programs; National charity 
survey: Yes; IRS's Statistics of Income file: No; Charity officials: 
No; Third-party agents and others: No; IRS and state 
officials: Yes; Other data sources[A]: No.

Objectives: Number of taxpayers claiming deductions; National charity 
survey: No; IRS's Statistics of Income file: Yes; Charity officials: 
No; Third-party agents and others: No; IRS and state 
officials: Yes; Other data sources[A]: No.

Objectives: (2) Vehicle donation process; National charity survey: 
Yes; IRS's Statistics of Income file: No; Charity officials: Yes; 
Third-party agents and others: Yes; IRS and state officials: Yes; 
Other data sources[A]: Yes.

Objectives: (3) Vehicle donation proceeds; National charity survey: 
Yes; IRS's Statistics of Income file: No; Charity officials: Yes; 
Third-party agents and others: Yes; IRS and state officials: Yes; 
Other data sources[A]: Yes.

Objectives: (4) IRS, state compliance activities; National charity 
survey: No; IRS's Statistics of Income file: No; Charity 
officials: No; Third-party agents and others: No; IRS and 
state officials: Yes; Other data sources[A]: No.

Objectives: (5) Taxpayer and charity guidance; National charity 
survey: No; IRS's Statistics of Income file: No; Charity officials: 
No; Third-party agents and others: Yes; IRS and state officials: Yes; 
Other data sources[A]: No.

Source: GAO.

[A] Other data sources include 54 tracked vehicle donation cases, 
Internet searches, and a judgmental sample of vehicle donation 
advertisements.

[End of table]

National Charity Survey:

To estimate the number of charities that have vehicle donation 
programs, we conducted a national telephone survey with a statistically 
representative sample of organizations registered with IRS as 501(c)(3) 
organizations (charities) with an annual income of at least $100,000. 
The sample was drawn from the 2002core data set (tax year 2001) of the 
National Center for Charitable Statistics (NCCS), which contains the 
IRS Form 990 data for all nonprofit organizations in the United States. 
A simple random sample of 600 charities was drawn from the population 
of 157,512 charities. The NCCS data were determined to be sufficiently 
reliable for the purposes of our report, based on interviews with NCCS 
officials regarding reliability procedures and observation of the 
sampling process.

Valid telephone numbers could not be obtained for 11 percent of the 
charities in the sample, and 6.8 percent of the charities did not 
answer the telephone after several contact attempts or did not return 
calls, yielding a total rate of nonresponse of 17.8 percent. We took 
steps to reduce errors in our estimates by pretesting the survey with 
charities of varying characteristics and performing computer analyses 
to identify inconsistencies and other indicators of errors.

We received valid responses from 493 of the 600 charities, for a 
response rate of 82.2 percent. Interview responses were weighted to 
account for the initial sampling rate and response rate. As with most 
surveys, our estimation assumes that nonrespondents would have answered 
like the survey respondents, and we do not know of any evidence about 
whether our respondents were different from nonrespondents. Our 
confidence in the precision of the results from this sample is 
expressed in 95 percent confidence intervals. We are 95 percent 
confident that the results we would have obtained had we studied the 
entire population are within +/-2 percentage points of this result.

Statistics of Income Data:

To estimate the number of taxpayers that claimed deductions for donated 
vehicles, we analyzed a random sample of tax year 2000 individual tax 
returns from IRS's Statistics of Income (SOI) individual tax return 
file. The SOI file is a stratified probability sample of income tax 
returns filed with the IRS. The tax year 2000 sample represented about 
129 million tax returns. The SOI sample contained information on 34,942 
returns where taxpayers itemized deductions and claimed a noncash 
contribution of over $500. We randomly sampled 600 cases from this 
sample population and requested the tax returns from the IRS. Weights 
were adjusted to represent all taxpayers claiming noncash contributions 
exceeding $500. Of the 600 cases in our sample, actual returns were 
available for 509 of the cases. We determined that the SOI data were 
sufficiently reliable for the purposes of our report based on 
interviews with IRS officials and testing for bias in our sample. No 
bias was identified in a comparison of available returns and 
nonavailable returns in terms of taxable income, total contributions, 
and several other factors.

Charity Officials:

To obtain information on vehicle donation program processes and 
proceeds from vehicle sales, we contacted 65 charities throughout the 
country. The 65 charities included:

* 16 charities in our national charity survey that reported having a 
vehicle donation program,

* 8 charities interviewed as pretests to the survey, and:

* 41 charities identified in advertisements or on taxpayer deduction 
claims.

Not all 65 charities provided information on all topics discussed in 
the report. Where information is reported, the specific number of 
charities that provided information related to the topic discussed is 
included. These examples cannot be generalized beyond the charities 
responding.

Third-Party Agent and Other Organizations Interviewed:

We interviewed six third-party agents that provide vehicle donation 
program services to charities for examples of how the vehicle donation 
process works for their organizations and the charities they served. 
Some of the agents represented more than 100 different charities; 
however, the information we received from these agents cannot be 
generalized beyond the agents responding. We relied on a number of 
sources to identify vehicle donation third-party agents, including 
state attorney generals' office officials, donated vehicle 
advertisements, and charity officials.

To obtain information on guidance provided to donors and charities, we 
interviewed officials or reviewed materials from several organizations 
involved with charity oversight or charity fund-raising, including the 
Better Business Bureau, Chronicles of Philanthropy, the Independent 
Sector, and the American Institute of Philanthropy.

IRS and State Officials:

In addressing all of our objectives, we spoke with IRS headquarters 
officials from the Tax Exempt and Government Entities Operating 
Division, the Wages and Investment Operating Division, and the Small 
Business/Self-Employed Operating Division. We also conducted an on-site 
visit to IRS's Ogden Campus to obtain information on its Form 8282 
compliance program. We also interviewed the Chairperson of the IRS 
Vehicle Donations Working Group.

We contacted state officials based on referrals from the IRS and the 
National Association of State Charity Officials. We also interviewed 
state officials in California, Michigan, Massachusetts, Florida, 
Pennsylvania, South Carolina, Ohio, Oregon, Connecticut, Washington, 
and Texas.

Other Data Sources:

To determine the amount of proceeds charities receive from donated 
vehicles relative to the amounts taxpayers claimed as tax deductions, 
we tracked a judgmental set of donated vehicles obtained from 4 
charities in 4 states. Two charities were local charities that used 
third-party agents to manage their vehicle donation programs; 1 was a 
national charity that used a third-party agent to handle processing 
(but not advertising) for their vehicle donation program; and the 
fourth was a national charity that managed its vehicle donation program 
in-house. The information we obtained from the charities included the 
vehicle description, selling price, net amount received by the charity 
after expenses, and donor information. Using the donor information, we 
requested tax return data from the IRS to determine the amounts donors 
claimed as deductions for their vehicles. Not all of the vehicle donors 
claimed deductions for their donations. Of the 70 donors the IRS was 
able to identify as filing returns, 12 did not itemize their taxes. 
Four additional cases were dropped due to data errors or missing 
information. We were able to track the remaining 54 vehicle donations. 
The individual cases or cases in aggregate are for illustration only, 
and cannot be used to generalize to vehicle donations overall. Our 
analysis of the 54 tracked vehicles is shown in appendix III.

We reported summary data from the California Office of the Attorney 
General regarding the percent of proceeds received by charities from 
vehicle donation programs using commercial fundraisers. We discussed 
data reliability issues with state officials and determined that the 
data were sufficiently reliable for the purposes of our report.

[End of section]

Appendix II: Sample Claims of Vehicle Donation Advertisements:

Based on a review of a nonprojectable sample of vehicle donation 
advertisements, we found that vehicle donation advertisements most 
often stated that individuals could claim a tax deduction for the 
donation, if the donation served a charitable purpose, and the donor's 
vehicle would be towed free of charge. We analyzed 147 advertisements, 
including 69 newsprint advertisements from a sample of 50 newspapers 
nationwide, 33 radio advertisements from 19 radio stations in the top 
10 U.S. markets, and 44 Internet advertisements. Figure 9 identifies 
the most common claims made in the newspaper, radio, and Internet 
advertisements we reviewed.

Figure 9: Most Common Claims in Newspaper, Radio, and Internet 
Advertisements Reviewed:

[See PDF for image]

Note: Claims classified as "other" included promises that vehicles 
would be picked up in 24 hours, title transfer would be handled, or 
contributions would be used locally.

[End of figure]

According to an IRS official, advertisement claims are potentially 
misleading when they do not specify that taxpayers must itemize their 
deductions to claim a deduction for vehicle donations, since many 
taxpayers do not itemize their deductions. Of the 147 advertisements we 
reviewed, 117 indicated that taxpayers could claim a tax deduction, but 
only 7 advertisements specified that donors must itemize in order to 
claim a deduction.

In addition, IRS officials stated that advertisements could be 
misleading when they claim donors can value their vehicles at full, or 
maximum, market value when claiming a tax deduction, particularly when 
the same advertisements claim that vehicles are accepted whether they 
are running or not. Full or maximum market value, although not clearly 
defined, implies that a vehicle is in good running condition with no 
major mechanical defects. Fair market value equates to what a vehicle 
would sell for on the market, and takes into account a vehicle's 
condition and mileage, among other factors. Of the 147 advertisements 
we reviewed, 8 identified that a donor could claim full or maximum 
market value, while more commonly, advertisements identified that 
donors could claim fair market value on their tax returns when donating 
their vehicles.

Responsibility for oversight of advertisements is diffused. The Federal 
Communications Commission defers regulatory authority regarding false 
advertising on radio or television to the Federal Trade Commission 
(FTC). The FTC does not have specific jurisdiction over charities, but 
may become involved in cases of fraud. State officials are primarily 
responsible for false advertising by charitable organizations. 
Officials we interviewed from 2 states said that limited resources 
prevent them from providing broad oversight over advertisements, and 
that they generally review advertisements in response to consumer 
complaints, or when they discover that charities or third-party agents 
are soliciting in their state without being registered.

Table 3 identifies the number of advertisements we reviewed that 
specified taxpayers must itemize their deductions to claim a vehicle 
donation; that taxpayers could claim full, maximum, or fair market 
value for their deduction; and whether the advertisement referred 
potential donors to the IRS Web site, an accountant, the Kelley Blue 
Book,[Footnote 26] or other source for guidance on claiming a tax 
deduction.

Table 3: Vehicle Donation Claims Related to Tax Deductions (by medium):

Must itemize; Newspaper: 1; Radio: 0; Internet: 6; Total: 7.

Full market value; Newspaper: 3; Radio: 1; Internet: 2; Total: 6.

Maximum value; Newspaper: 0; Radio: 0; Internet: 2; Total: 2.

Fair market value; Newspaper: 7; Radio: 7; Internet: 24; Total: 38.

Consult IRS Web site; Newspaper: 0; Radio: 0; Internet: 14; Total: 14.

Consult with accountant; Newspaper: 2; Radio: 3; Internet: 17; Total: 
22.

Kelley Blue Book; Newspaper: 1; Radio: 4; Internet: 22; Total: 27.

Other (e.g. IRS); Newspaper: 12; Radio: 3; Internet: 7; Total: 22.

Source: GAO.

Note: Some ads contained more than one claim, so the total number of 
claims is greater than the 147 advertisements we reviewed.

[End of table]

The transcript from an actual radio advertisement identifying some of 
the benefits of vehicle donation programs is shown in figure 10.

Figure 10: Transcript of Actual Radio Advertisement for Vehicle 
Donations:

[See PDF for image]

[End of figure]

That Car:

What to do with that car? Donate it to the Council of the Blind! 
Donating a car is trouble free; you get a tax write off, and do your 
part for a worthy cause. The California Council of the Blind has helped 
in the workplace since the thirties. Simply call, we'll pick up that 
car, running or not, in most cases, plus boats--even real estate can be 
donated for a write off. Call our live operators for your free pick up 
now--800 xxx-xxxx. 800 xxx-xxxx, that's xxx-xxxx.

Source: Courtesy of Pete Palmer Advertising, San Francisco, California.

[End of section]

Appendix III: Selected Vehicle Donations Tracked from Donation to 
Taxpayer Claim for Charitable Deduction:

Table 4 details 54 specific vehicle donations identifying the amount of 
proceeds charities receive from donated vehicle sales relative to the 
amounts taxpayers claim as tax deductions for donated vehicles. 
Information on this judgmental set of 54 vehicle donations were 
obtained from 4 charities in 4 states. The individual cases or cases in 
aggregate are for illustration only, and cannot be used to generalize 
vehicle donations overall.

Table 4: Vehicle Donations Tracked from Donation to Taxpayer Claim for 
Charitable Deduction--54 Vehicles:

Vehicle as described in taxpayer documents: 1990 Mercury Station Wagon; 
Vehicle gross sale price: $30; Net proceeds (loss) to charity from 
vehicle sale: ($130); Donated vehicle value claimed on tax return: 
$2,915; Gross sale price as percent of amount donor claimed: 1%; 
Proceeds to charity as a percent of gross sale price (loss): (433%); 
Charity receipt (loss) as percent of donor claim: (4%).

Vehicle as described in taxpayer documents: 1989 Subaru GL; Vehicle 
gross sale price: $50; Net proceeds (loss) to charity from vehicle 
sale: ($45); Donated vehicle value claimed on tax return: $3,100; Gross 
sale price as percent of amount donor claimed: 2%; Proceeds to charity 
as a percent of gross sale price (loss): (90%); Charity receipt (loss) 
as percent of donor claim: (1%).

Vehicle as described in taxpayer documents: 1991 Plymouth Voyager; 
Vehicle gross sale price: $40; Net proceeds (loss) to charity from 
vehicle sale: ($25); Donated vehicle value claimed on tax return: 
$1,700; Gross sale price as percent of amount donor claimed: 2%; 
Proceeds to charity as a percent of gross sale price (loss): (63%); 
Charity receipt (loss) as percent of donor claim: (1%).

Vehicle as described in taxpayer documents: 1993 Ford; Vehicle gross 
sale price: $25; Net proceeds (loss) to charity from vehicle sale: 
($20); Donated vehicle value claimed on tax return: $2,000; Gross sale 
price as percent of amount donor claimed: 1%; Proceeds to charity as a 
percent of gross sale price (loss): (80%); Charity receipt (loss) as 
percent of donor claim: (1%).

Vehicle as described in taxpayer documents: 1988 Ford Escort; Vehicle 
gross sale price: $25; Net proceeds (loss) to charity from vehicle 
sale: ($20); Donated vehicle value claimed on tax return: $1,000; Gross 
sale price as percent of amount donor claimed: 3%; Proceeds to charity 
as a percent of gross sale price (loss): (80%); Charity receipt (loss) 
as percent of donor claim: (2%).

Vehicle as described in taxpayer documents: 1990 Ford Taurus; Vehicle 
gross sale price: $30; Net proceeds (loss) to charity from vehicle 
sale: ($15); Donated vehicle value claimed on tax return: $1,500; Gross 
sale price as percent of amount donor claimed: 2%; Proceeds to charity 
as a percent of gross sale price (loss): (50%); Charity receipt (loss) 
as percent of donor claim: (1%).

Vehicle as described in taxpayer documents: 1986 Toyota 4-Runner; 
Vehicle gross sale price: $300; Net proceeds (loss) to charity from 
vehicle sale: $5; Donated vehicle value claimed on tax return: $3,950; 
Gross sale price as percent of amount donor claimed: 8%; Proceeds to 
charity as a percent of gross sale price (loss): 2%; Charity receipt 
(loss) as percent of donor claim: 0%.

Vehicle as described in taxpayer documents: 1981 Toyota Celica; Vehicle 
gross sale price: $100; Net proceeds (loss) to charity from vehicle 
sale: $5; Donated vehicle value claimed on tax return: $500; Gross sale 
price as percent of amount donor claimed: 20%; Proceeds to charity as a 
percent of gross sale price (loss): 5%; Charity receipt (loss) as 
percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1991 Ford Crown Victoria; 
Vehicle gross sale price: $300; Net proceeds (loss) to charity from 
vehicle sale: $165; Donated vehicle value claimed on tax return: 
$3,100; Gross sale price as percent of amount donor claimed: 10%; 
Proceeds to charity as a percent of gross sale price (loss): 55%; 
Charity receipt (loss) as percent of donor claim: 5%.

Vehicle as described in taxpayer documents: 1990 Nissan 240 SX; Vehicle 
gross sale price: $450; Net proceeds (loss) to charity from vehicle 
sale: $293; Donated vehicle value claimed on tax return: $2,375; Gross 
sale price as percent of amount donor claimed: 19%; Proceeds to charity 
as a percent of gross sale price (loss): 65%; Charity receipt (loss) as 
percent of donor claim: 12%.

Vehicle as described in taxpayer documents: 1993 Chevrolet Cavalier; 
Vehicle gross sale price: $450; Net proceeds (loss) to charity from 
vehicle sale: $405; Donated vehicle value claimed on tax return: $750; 
Gross sale price as percent of amount donor claimed: 60%; Proceeds to 
charity as a percent of gross sale price (loss): 90%; Charity receipt 
(loss) as percent of donor claim: 54%.

Vehicle as described in taxpayer documents: 1996 Ford Taurus; Vehicle 
gross sale price: $700; Net proceeds (loss) to charity from vehicle 
sale: $480; Donated vehicle value claimed on tax return: $3,500; Gross 
sale price as percent of amount donor claimed: 20%; Proceeds to charity 
as a percent of gross sale price (loss): 69%; Charity receipt (loss) as 
percent of donor claim: 14%.

Vehicle as described in taxpayer documents: 1991 Saab 9000S; Vehicle 
gross sale price: $950; Net proceeds (loss) to charity from vehicle 
sale: $653; Donated vehicle value claimed on tax return: $4,500; Gross 
sale price as percent of amount donor claimed: 21%; Proceeds to charity 
as a percent of gross sale price (loss): 69%; Charity receipt (loss) as 
percent of donor claim: 15%.

Vehicle as described in taxpayer documents: 1994 Saturn SL2 Sedan 4D; 
Vehicle gross sale price: $1,350; Net proceeds (loss) to charity from 
vehicle sale: $968; Donated vehicle value claimed on tax return: 
$5,750; Gross sale price as percent of amount donor claimed: 23%; 
Proceeds to charity as a percent of gross sale price (loss): 72%; 
Charity receipt (loss) as percent of donor claim: 17%.

Vehicle as described in taxpayer documents: 1988 Toyota Camry; Vehicle 
gross sale price: $900; Net proceeds (loss) to charity from vehicle 
sale: $615; Donated vehicle value claimed on tax return: $2,680; Gross 
sale price as percent of amount donor claimed: 34%; Proceeds to charity 
as a percent of gross sale price (loss): 68%; Charity receipt (loss) as 
percent of donor claim: 23%.

Vehicle as described in taxpayer documents: 1992 Pontiac Grand Am SE-
V6; Vehicle gross sale price: $325; Net proceeds (loss) to charity from 
vehicle sale: $174; Donated vehicle value claimed on tax return: 
$2,750; Gross sale price as percent of amount donor claimed: 12%; 
Proceeds to charity as a percent of gross sale price (loss): 54%; 
Charity receipt (loss) as percent of donor claim: 6%.

Vehicle as described in taxpayer documents: 1989 Toyota All Trac Wagon 
(Corolla); Vehicle gross sale price: $600; Net proceeds (loss) to 
charity from vehicle sale: $390; Donated vehicle value claimed on tax 
return: $1,000; Gross sale price as percent of amount donor claimed: 
60%; Proceeds to charity as a percent of gross sale price (loss): 65%; 
Charity receipt (loss) as percent of donor claim: 39%.

Vehicle as described in taxpayer documents: 1995 Toyota 1/2 Ton Pickup; 
Vehicle gross sale price: $1,800; Net proceeds (loss) to charity from 
vehicle sale: $1,290; Donated vehicle value claimed on tax return: 
$4,999; Gross sale price as percent of amount donor claimed: 36%; 
Proceeds to charity as a percent of gross sale price (loss): 72%; 
Charity receipt (loss) as percent of donor claim: 26%.

Vehicle as described in taxpayer documents: 1989 Plymouth Grand 
Voyager; Vehicle gross sale price: $200; Net proceeds (loss) to charity 
from vehicle sale: $55; Donated vehicle value claimed on tax return: 
$1,900; Gross sale price as percent of amount donor claimed: 11%; 
Proceeds to charity as a percent of gross sale price (loss): 28%; 
Charity receipt (loss) as percent of donor claim: 3%.

Vehicle as described in taxpayer documents: 1980 Datsun 510; Vehicle 
gross sale price: $350; Net proceeds (loss) to charity from vehicle 
sale: $213; Donated vehicle value claimed on tax return: $1,400; Gross 
sale price as percent of amount donor claimed: 25%; Proceeds to charity 
as a percent of gross sale price (loss): 61%; Charity receipt (loss) as 
percent of donor claim: 15%.

Vehicle as described in taxpayer documents: 1992 Lincoln Continental; 
Vehicle gross sale price: $1,200; Net proceeds (loss) to charity from 
vehicle sale: $1,065[A]; Donated vehicle value claimed on tax return: 
$4,675; Gross sale price as percent of amount donor claimed: 26%; 
Proceeds to charity as a percent of gross sale price (loss): 89%; 
Charity receipt (loss) as percent of donor claim: 23%.

Vehicle as described in taxpayer documents: 1989 Chevrolet Blazer S10-
2DR; Vehicle gross sale price: $300; Net proceeds (loss) to charity 
from vehicle sale: $180[A]; Donated vehicle value claimed on tax 
return: $4,050; Gross sale price as percent of amount donor claimed: 
7%; Proceeds to charity as a percent of gross sale price (loss): 60%; 
Charity receipt (loss) as percent of donor claim: 4%.

Vehicle as described in taxpayer documents: 1989 Ford Taurus; Vehicle 
gross sale price: $225; Net proceeds (loss) to charity from vehicle 
sale: $84[A]; Donated vehicle value claimed on tax return: $1,500; 
Gross sale price as percent of amount donor claimed: 15%; Proceeds to 
charity as a percent of gross sale price (loss): 37%; Charity receipt 
(loss) as percent of donor claim: 6%.

Vehicle as described in taxpayer documents: 1987 Chevy Pickup; Vehicle 
gross sale price: $350; Net proceeds (loss) to charity from vehicle 
sale: $245[A]; Donated vehicle value claimed on tax return: $500; 
Gross sale price as percent of amount donor claimed: 70%; Proceeds to 
charity as a percent of gross sale price (loss): 70%; Charity receipt 
(loss) as percent of donor claim: 49%.

Vehicle as described in taxpayer documents: Red Honda Accord LXI 2D; 
Vehicle gross sale price: $150; Net proceeds (loss) to charity from 
vehicle sale: $10[A]; Donated vehicle value claimed on tax return: 
$4,175; Gross sale price as percent of amount donor claimed: 4%; 
Proceeds to charity as a percent of gross sale price (loss): 7%; 
Charity receipt (loss) as percent of donor claim: 0%.

Vehicle as described in taxpayer documents: 1994 Dodge Caravan; Vehicle 
gross sale price: $650; Net proceeds (loss) to charity from vehicle 
sale: $510[A]; Donated vehicle value claimed on tax return: $4,535; 
Gross sale price as percent of amount donor claimed: 14%; Proceeds to 
charity as a percent of gross sale price (loss): 78%; Charity receipt 
(loss) as percent of donor claim: 11%.

Vehicle as described in taxpayer documents: 1993 Saturn SC 2; Vehicle 
gross sale price: $225; Net proceeds (loss) to charity from vehicle 
sale: $70[A]; Donated vehicle value claimed on tax return: $3,800; 
Gross sale price as percent of amount donor claimed: 6%; Proceeds to 
charity as a percent of gross sale price (loss): 31%; Charity receipt 
(loss) as percent of donor claim: 2%.

Vehicle as described in taxpayer documents: 1990 GMAC Convention; 
Vehicle gross sale price: $400; Net proceeds (loss) to charity from 
vehicle sale: $245[A]; Donated vehicle value claimed on tax return: 
$4,800; Gross sale price as percent of amount donor claimed: 8%; 
Proceeds to charity as a percent of gross sale price (loss): 61%; 
Charity receipt (loss) as percent of donor claim: 5%.

Vehicle as described in taxpayer documents: 1991 Toyota Camry; Vehicle 
gross sale price: $675; Net proceeds (loss) to charity from vehicle 
sale: $520[A]; Donated vehicle value claimed on tax return: $2,039; 
Gross sale price as percent of amount donor claimed: 33%; Proceeds to 
charity as a percent of gross sale price (loss): 77%; Charity receipt 
(loss) as percent of donor claim: 26%.

Vehicle as described in taxpayer documents: 1995 Dodge Caravan; Vehicle 
gross sale price: $900; Net proceeds (loss) to charity from vehicle 
sale: $715[A]; Donated vehicle value claimed on tax return: $4,692; 
Gross sale price as percent of amount donor claimed: 19%; Proceeds to 
charity as a percent of gross sale price (loss): 79%; Charity receipt 
(loss) as percent of donor claim: 15%.

Vehicle as described in taxpayer documents: 1991 Toyota Camry; Vehicle 
gross sale price: $400; Net proceeds (loss) to charity from vehicle 
sale: $285[A]; Donated vehicle value claimed on tax return: $4,500; 
Gross sale price as percent of amount donor claimed: 9%; Proceeds to 
charity as a percent of gross sale price (loss): 71%; Charity receipt 
(loss) as percent of donor claim: 6%.

Vehicle as described in taxpayer documents: 1988 Toyota Corolla Wagon; 
Vehicle gross sale price: $35; Net proceeds (loss) to charity from 
vehicle sale: $20[A]; Donated vehicle value claimed on tax return: 
$1,427; Gross sale price as percent of amount donor claimed: 2%; 
Proceeds to charity as a percent of gross sale price (loss): 57%; 
Charity receipt (loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1986 Mazda B2000 LX Long 
Bed; Vehicle gross sale price: $35; Net proceeds (loss) to charity from 
vehicle sale: $20[A]; Donated vehicle value claimed on tax return: 
$1,095; Gross sale price as percent of amount donor claimed: 3%; 
Proceeds to charity as a percent of gross sale price (loss): 57%; 
Charity receipt (loss) as percent of donor claim: 2%.

Vehicle as described in taxpayer documents: 1985 Volvo 760; Vehicle 
gross sale price: $35; Net proceeds (loss) to charity from vehicle 
sale: $20[A]; Donated vehicle value claimed on tax return: $2,654; 
Gross sale price as percent of amount donor claimed: 1%; Proceeds to 
charity as a percent of gross sale price (loss): 57%; Charity receipt 
(loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: Automobile; Vehicle gross 
sale price: $50; Net proceeds (loss) to charity from vehicle sale: $35[
A]; Donated vehicle value claimed on tax return: $395; Gross sale price 
as percent of amount donor claimed: 13%; Proceeds to charity as a 
percent of gross sale price (loss): 70%; Charity receipt (loss) as 
percent of donor claim: 9%.

Vehicle as described in taxpayer documents: 1987 Ford Thunderbird; 
Vehicle gross sale price: $35; Net proceeds (loss) to charity from 
vehicle sale: $10[A]; Donated vehicle value claimed on tax return: 
$1,595; Gross sale price as percent of amount donor claimed: 2%; 
Proceeds to charity as a percent of gross sale price (loss): 29%; 
Charity receipt (loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1994 Hyundai Elantra; 
Vehicle gross sale price: $25; Net proceeds (loss) to charity from 
vehicle sale: $10[A]; Donated vehicle value claimed on tax return: 
$1,450; Gross sale price as percent of amount donor claimed: 2%; 
Proceeds to charity as a percent of gross sale price (loss): 40%; 
Charity receipt (loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1988 Mazda Pickup; Vehicle 
gross sale price: $125; Net proceeds (loss) to charity from vehicle 
sale: $75[A]; Donated vehicle value claimed on tax return: $1,525; 
Gross sale price as percent of amount donor claimed: 8%; Proceeds to 
charity as a percent of gross sale price (loss): 60%; Charity receipt 
(loss) as percent of donor claim: 5%.

Vehicle as described in taxpayer documents: 1987 Volvo 740; Vehicle 
gross sale price: $50; Net proceeds (loss) to charity from vehicle 
sale: $35[A]; Donated vehicle value claimed on tax return: $3,000; 
Gross sale price as percent of amount donor claimed: 2%; Proceeds to 
charity as a percent of gross sale price (loss): 70%; Charity receipt 
(loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1986 Chrysler Town & 
Country; Vehicle gross sale price: $35; Net proceeds (loss) to charity 
from vehicle sale: $20[A]; Donated vehicle value claimed on tax 
return: $1,850; Gross sale price as percent of amount donor claimed: 
2%; Proceeds to charity as a percent of gross sale price (loss): 57%; 
Charity receipt (loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1988 Olds Cutlass Wagon; 
Vehicle gross sale price: $25; Net proceeds (loss) to charity from 
vehicle sale: $10[A]; Donated vehicle value claimed on tax return: 
$1,000; Gross sale price as percent of amount donor claimed: 3%; 
Proceeds to charity as a percent of gross sale price (loss): 40%; 
Charity receipt (loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1987 Honda; Vehicle gross 
sale price: $70; Net proceeds (loss) to charity from vehicle sale: $10[
A]; Donated vehicle value claimed on tax return: $1,500; Gross sale 
price as percent of amount donor claimed: 5%; Proceeds to charity as a 
percent of gross sale price (loss): 14%; Charity receipt (loss) as 
percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1987 Subaru; Vehicle gross 
sale price: $25; Net proceeds (loss) to charity from vehicle sale: $10[
A]; Donated vehicle value claimed on tax return: $1,890; Gross sale 
price as percent of amount donor claimed: 1%; Proceeds to charity as a 
percent of gross sale price (loss): 40%; Charity receipt (loss) as 
percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1987 Volvo; Vehicle gross 
sale price: $50; Net proceeds (loss) to charity from vehicle sale: $35[
A]; Donated vehicle value claimed on tax return: $2,175; Gross sale 
price as percent of amount donor claimed: 2%; Proceeds to charity as a 
percent of gross sale price (loss): 70%; Charity receipt (loss) as 
percent of donor claim: 2%.

Vehicle as described in taxpayer documents: 1996 Dodge Caravan; Vehicle 
gross sale price: $110; Net proceeds (loss) to charity from vehicle 
sale: $60[A]; Donated vehicle value claimed on tax return: $1,800; 
Gross sale price as percent of amount donor claimed: 6%; Proceeds to 
charity as a percent of gross sale price (loss): 55%; Charity receipt 
(loss) as percent of donor claim: 3%.

Vehicle as described in taxpayer documents: 1986 Nissan Maxima; Vehicle 
gross sale price: $40; Net proceeds (loss) to charity from vehicle 
sale: $15[A]; Donated vehicle value claimed on tax return: $1,250; 
Gross sale price as percent of amount donor claimed: 3%; Proceeds to 
charity as a percent of gross sale price (loss): 38%; Charity receipt 
(loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1990 Ford Taurus L; Vehicle 
gross sale price: $25; Net proceeds (loss) to charity from vehicle 
sale: $10[A]; Donated vehicle value claimed on tax return: $1,105; 
Gross sale price as percent of amount donor claimed: 2%; Proceeds to 
charity as a percent of gross sale price (loss): 40%; Charity receipt 
(loss) as percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1988 Oldsmobile Cutlass; 
Vehicle gross sale price: $35; Net proceeds (loss) to charity from 
vehicle sale: $20[A]; Donated vehicle value claimed on tax return: 
$900; Gross sale price as percent of amount donor claimed: 4%; Proceeds 
to charity as a percent of gross sale price (loss): 57%; Charity 
receipt (loss) as percent of donor claim: 2%.

Vehicle as described in taxpayer documents: 1983 Audi 5000 4DR Turbo; 
Vehicle gross sale price: $100; Net proceeds (loss) to charity from 
vehicle sale: $0; Donated vehicle value claimed on tax return: $1,500; 
Gross sale price as percent of amount donor claimed: 7%; Proceeds to 
charity as a percent of gross sale price (loss): 0%; Charity receipt 
(loss) as percent of donor claim: 0%.

Vehicle as described in taxpayer documents: 1985 Toyota Celica; Vehicle 
gross sale price: $250; Net proceeds (loss) to charity from vehicle 
sale: $10; Donated vehicle value claimed on tax return: $2,000; Gross 
sale price as percent of amount donor claimed: 13%; Proceeds to charity 
as a percent of gross sale price (loss): 4%; Charity receipt (loss) as 
percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1983 GMC Jimmy; Vehicle 
gross sale price: $375; Net proceeds (loss) to charity from vehicle 
sale: $31; Donated vehicle value claimed on tax return: $2,400; Gross 
sale price as percent of amount donor claimed: 16%; Proceeds to charity 
as a percent of gross sale price (loss): 8%; Charity receipt (loss) as 
percent of donor claim: 1%.

Vehicle as described in taxpayer documents: 1982 Toyota Starlet; 
Vehicle gross sale price: $300; Net proceeds (loss) to charity from 
vehicle sale: $22; Donated vehicle value claimed on tax return: $1,225; 
Gross sale price as percent of amount donor claimed: 24%; Proceeds to 
charity as a percent of gross sale price (loss): 7%; Charity receipt 
(loss) as percent of donor claim: 2%.

Vehicle as described in taxpayer documents: 1983 Volvo 240 2 door; 
Vehicle gross sale price: $450; Net proceeds (loss) to charity from 
vehicle sale: $55; Donated vehicle value claimed on tax return: $2,000; 
Gross sale price as percent of amount donor claimed: 23%; Proceeds to 
charity as a percent of gross sale price (loss): 12%; Charity receipt 
(loss) as percent of donor claim: 3%.

Vehicle as described in taxpayer documents: 1991 Plymouth Acclaim Sedan 
4D; Vehicle gross sale price: $475; Net proceeds (loss) to charity from 
vehicle sale: $52; Donated vehicle value claimed on tax return: $3,285; 
Gross sale price as percent of amount donor claimed: 14%; Proceeds to 
charity as a percent of gross sale price (loss): 11%; Charity receipt 
(loss) as percent of donor claim: 2%.

Source: GAO summary of specific vehicle donations made to 4 charities 
and associated tax claims for those donations. All dollar amounts 
rounded to the nearest dollar.

[A] Excluding expenses associated with advertising.

[End of table]

[End of section]

Appendix IV: Vehicle Donation Guidance:

Government and consumer organizations provide guidance to donors to 
assist them in making informed decisions about donating vehicles. 
Guidance is also available to charities to assist them in selecting, 
hiring, and managing third-party agents. A partial list of resources is 
included in table 5.

Table 5: Sources of Guidance in Making Vehicle Donation Decisions:

Sources: Internal Revenue Service; www.irs.gov; Available information: 
* Lists tax exempt organizations that may qualify donors for tax 
deductions (Pub. 78). IRS also suggests Guidestar (see below) as a 
resource; * Describes contributions that qualify for tax deductions 
and recordkeeping requirements (Pub. 526); * Describes information 
necessary for donors to value and deduct noncash contributions (Pub 
561); * Provides guidance for exempt organizations on documenting 
charitable contributions (Pub. 1771); * Provides an annual brochure 
called Exempt Organizations Implementing Guidelines, Vehicle 
Donations, that advises how exempt organizations can avoid problems 
with vehicle donation programs.

Sources: Federal Trade Commission; www.ftc.gov; Available information: 
Provides tips on how to recognize and avoid deceptive solicitations. In 
conjunction with state officials[A] launched Operation Phony 
Philanthropy, to identify fraudulent fundraising activities, none of 
these cases to date have involved vehicle donations.

Sources: State charity regulators; -The National Organization of State 
Charity Officials www.nasconet.org; Available information: * Lists 
contacts for state regulators overseeing charitable solicitations, 
including those with vehicle donation programs, and general information 
state regulators need to know.

Sources: -Individual state Web sites, such as:; California Attorney 
General; www.caag.state.ca.us; Michigan Attorney General; 
www.michigan.gov/ag; New York Attorney General; www.oag.state.ny.us; 
Available information: * Provide information to donors on making 
contribution decisions, including financial information on charities or 
their fund-raisers.

Sources: Guidestar; www.guidestar.org; Available information: * 
Provides a national database of U.S. charitable organizations, and 
general information relevant to IRS-recognized nonprofits.

Sources: Better Business Bureau's; Wise Giving Alliance; www.give.org/
tips/usedcar.asp; Available information: * Provides a Vehicle Donations 
Checklist that, among its seven tips, advises the donor to take a photo 
of the car for tax records and to keep copies of current classified ads 
or guide value estimates for similar vehicles; * Provides general 
standards charities should meet, including those with vehicle donation 
programs, enabling donors to evaluate (1) how charities are governed, 
(2) the ways they spend money, (3) the truthfulness of their 
representations, and (4) their willingness to disclose basic 
information to the public. Standards also help charities maintain 
overall good governance of their vehicle donation programs.

Sources: Charity Navigator; www.charitynavigator.org; Available 
information: * Provides advice to donors of used vehicles, such as 
urging donors who have to use third-party agents to research the 
percentage the charity ultimately receives.

Sources: American Institute of Philanthropy; www.charitywatch.org; 
Available information: * Provides search capability to locate tax 
exempt organizations that may qualify vehicle donors for tax 
deductions; * Provides tips to donors of used vehicles, such as 
encouraging them to get a receipt from the charity for their vehicle 
donation.

Sources: Chronicle of Philanthropy; http://philanthropy.com; Available 
information: * Provides general information for subscribers on all 
matters involving philanthropic enterprises, including fund-raisers 
who may process vehicle donations.

Source: GAO analysis of government and consumer organizations guidance.

[A] Participating states included Connecticut, Florida, Illinois, 
Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi, North 
Dakota, New Jersey, New York, Oregon, Pennsylvania, South Carolina, and 
South Dakota.

[End of table]

[End of section]

Appendix V: Comments from the Internal Revenue Service:

DEPARTMENT OF THE TREASURY 
INTERNAL REVENUE SERVICE 
WASHINGTON, D.C. 20224:

COMMISSIONER:

November 10, 2003:

Ms. Cathleen A. Berrick:

Director, Homeland Security and Justice Issues 
United States General Accounting Office 
Washington, DC 20548:

Dear Ms. Berrick:

I welcome the opportunity to reassess our current programs in light of 
your draft report titled VEHICLE DONATIONS: Benefits to Charities and 
Donors, but Limited Oversight. Your draft report provides useful data 
on vehicle donation programs of charities.

The draft report contains two recommendations. The first is that we 
assess our compliance program for generating audit leads on taxpayers 
who may have overstated their non-cash charitable contribution 
deductions.

I agree with this recommendation. We plan on reassessing the merits of 
the program by determining the level of noncompliance. After this 
review, we will determine whether the program should be modified.

The second recommendation in the draft report is that we consider 
maintaining and transcribing filed Forms 8282. This recommendation 
stems from your review of the work of a task force on donated property 
we previously established. This task force has been developing 
proposals to address technical issues, educational initiatives, and 
examination issues and procedures. One of the task force's preliminary 
recommendations deals with the retention and transcribing of Form 8282.

I agree with your recommendation to assess the proper treatment of Form 
8282 by the Internal Revenue Service. Maintaining and transcribing 
these forms would help us verify if charities have filed required Form 
8282, and, if so, whether they are accurate. Our specific decisions on 
the second recommendation will depend on and correspond with the 
decisions we make on your first recommendation. Of course, resource 
constraints will be a factor in all decisions in this area. We are also 
looking at whether other alternatives ensure compliance with reporting 
requirements by charities. In this regard, we are redesigning Form 990 
(Return of Organization Exempt from Income Tax). As part of this 
process, we will consider whether we should request additional 
information on in-kind contributions in general and other information 
relating to the filing of Form 8282. For Form 8282, the information 
requested on Form 990 might include the number of forms filed during 
the year, the specific kinds of property represented on the forms, and 
the total value of each category of property reported. This would tell 
us which organizations are filing these forms and the relative sizes of 
the programs.

We have already taken steps to improve reporting of vehicle donation 
programs. The donated property task force has revised the Form 990 
instructions to provide a vehicle donation example for organizations 
filing 2003 returns. Your report also accurately reflects our continued 
partnership with the states in this area and our active role in public 
education. As your report notes, we are developing a brochure for 
charities on how to avoid problems in their vehicle donation programs. 
We will publish this brochure no later than March 31, 2004. We will 
also publish a brochure for potential vehicle donors during the fiscal 
year.

If you have any questions, or if you would like to discuss this 
response in more detail, please call Steven T. Miller, Director, Exempt 
Organizations, at 202-283-2300.

Sincerely,

Signed by: 

Mark W. Everson:

[End of section]

Appendix VI: Staff Acknowledgments:

Acknowledgments:

Leo Barbour, Carl Barden, Keira Dembowski, Michele Fejfar, Tre Forlano, 
Lemuel N. Jackson, Monica Kelly, Rosa Leung, Brittni Milam-Bell, Amy 
Rosewarne, Sam Scrutchins, Addie Spahr, and Wendy Turenne made key 
contributions to this report.

FOOTNOTES

[1] Third-party agents refer to commercial fund-raisers, vendors, and 
not-for-profit organizations that solicit and perform vehicle donation 
processing activities on behalf of charities. 

[2] U.S. General Accounting Office, Vehicle Donations: Taxpayer 
Considerations When Donating Vehicles to Charities, GAO-03-608T 
(Washington, D.C.: Apr. 2003).

[3] Registration of charitable organizations may involve providing 
information such as the name of the organization and charitable 
purpose; office locations; information on key charity officials; and 
the general purpose for which the solicited contributions are to be 
used.

[4] We surveyed a statistically representative sample of charities from 
the 2002 core data set of the National Center for Charitable 
Statistics, of approximately 157,500 501(c)(3) organizations with 
incomes of $100,000 or higher. The 95 percent confidence interval for 
the number of charities with vehicle donation programs is between 1.5 
to 4.3 percent, or between 2,400 to 6,800 charities.

[5] We used IRS's tax year 2000 Statistics of Income (SOI) file to 
select our statistically representative sample of returns.

[6] The 95 percent confidence interval for number of returns filed is 
plus or minus 0.4 percent, or between 0.2 and 1 percent.

[7] The 95 percent confidence interval for noncash contribution 
deductions over $500 is plus or minus 10.8 percent, or between 6 and 28 
percent.

[8] The 95 percent confidence interval for the $654 million estimate is 
plus or minus $480 million, or between $174 million and $1.13 billion.

[9] This value may underestimate the taxes foregone because only 
vehicles valued over $500 are included. About 16 million taxpayers 
claimed an estimated $5.5 billion in noncash contributions of $500 or 
less. Some of these taxpayers may have claimed tax deductions for 
vehicle donations, but they were not required to list these 
transactions on their returns. 

[10] Two charities shared voluntary feedback provided by vehicle 
donors. Over 3,000 donors responded in one survey and about 400 
responded in the other. We did not review the methodology for the 
surveys, and consider the results to be illustrative. 

[11] We reviewed a nonprojectable sample of 147 radio, newspaper, and 
Internet advertisements for donated vehicle programs to determine the 
types of claims that charities and third parties made in soliciting for 
used vehicles. Appendix II provides information on the results of our 
analysis. 

[12] We did not obtain information on donor contacts with the charity 
or third-party agents for the remaining 18 charities.

[13] IRS ruled in November 2002 (REV. 2002-67) that a donor transfer of 
a vehicle to a charity-authorized agent can be treated as a transfer to 
the charity.

[14] We did not obtain information on donated vehicle disposals from 
the remaining 6 charities.

[15] See the state Web site for reporting requirements and list of 
charities and third-party agents at www.caag.state.ca.us. 

[16] About half of the vehicles we tracked came from 1 charity that 
does its own advertising, which can be one of the highest cost elements 
of a vehicle donation program. Proceeds this charity received from its 
third-party agent are higher because the cost of advertising is not 
included. 

[17] Seven charities reported a flat fee arrangement, such as $45 or 
$50 per vehicle.

[18] IRS Publication 561, Determining the Value of Donated Property.

[19] Seven of the 54 did not identify the basis for their vehicle's 
claimed value; 6 used a "catalogue;" 8 stated they used comparable sale 
prices; and the remaining 8 out of 54 used the Internet or other 
miscellaneous sources.

[20] Under section 6050L of the Internal Revenue Code, charities are 
required to submit Form 8282 "Donee Information Return" when they 
dispose of donated property within 2 years of receiving property for 
which the taxpayer valued for more than $5,000. The form describes the 
property, the donor, and the proceeds received by the charity. All Form 
8282s are to be sent to IRS's Ogden Campus.

[21] According to Ogden officials, as of September 23, 2003, 516 cases 
had been referred to the field in 2003.

[22] We analyzed IRS's Audit Information Management System, which is a 
computerized file of audit cases, to determine whether any of the Ogden 
cases were audited in fiscal years 2001 and 2002. We did not verify the 
accuracy of these data.

[23] Taxpayers are required to attach Form 8283 to their returns when 
they have noncash contributions over $500. We did verify the accuracy 
of IRS's disallowed deductions data.

[24] As of August 31, 2003, IRS data shows that 139 deductions valued 
at about $12 million were disallowed. 

[25] Under Internal Revenue Code section 6721, a $50 penalty can be 
assessed for each failure to file a Form 8282. 

[26] The Kelley Blue Book is a used car guide featuring 15 years of 
values for over 10,000 models of cars, trucks, and vans and is 
available both in print and Internet format.

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