Car Donations May Hit IRS Roadblock

Get rid of your old car, help out a charity and get a
write-off. What could be easier?

With the April 15 IRS deadline drawing near, charities are
tapping taxpayer frustration by increasing their appeals for vehicle donations.
But a proposed government crackdown on the value donors can claim for a donated
vehicle is changing the way programs are being advertised.

Claims of “highest blue book value” and grandiose statements
about how a car donation will support your favorite charity are giving way to
cautious, increasingly detailed disclosures of the donation process, including
specifics on how much a charity might expect to receive from a donation.

The pressure on advertisers to come clean about the donation
process follows a recent congressional investigation that found many donors
claim the highest “blue book” value on their taxes, while many charities are
typically earning 20 percent or less from the transactions. In some cases,
nonprofits are even losing money on the deal.

Uncle Sam is now threatening to step in and regulate a
system based primarily on the honor system, which provides donors with plump
write-offs and makes car auctioneers a tidy bundle but leaves charities with
little to show.

“There’s clearly been an area where there’s potential abuse,”
said Paul Castro, president of Jewish Family Service (JFS).

While charities might be receiving a small percentage of the
total donation, many are increasingly reliant on the vehicle sales as a funding
source for annual budgets.

JFS, which uses a third party to collect and sell donated
cars, is worried that any changes in the current system will carry a negative
financial impact for charities. Proceeds from the sale of donated vehicles 
account for 22 percent and 33 percent of the budgets for the organization’s
Valley and Santa Monica offices, respectively.

“Obviously, anything that gets into place from a regulatory
perspective that chills the donor is something that’s going to effect us,
because people are going to be more cautious,” Castro said. “On the other hand,
if the charity is forced to get the appraisal, then it’s going to become a
burdensome process, and if the donor is required to get an appraisal, they’re
going to be less likely to donate it.”

The Bush administration, as part of its budget proposal for
2005, is hoping to close this tax loophole, which could save the federal
government billions in estimated savings over the next 10 years by establishing
either a deduction limit or stricter appraisal requirements for used vehicle
donations. However, the change could have a deleterious impact on nonprofits at
both the national and local level.

If passed by Congress, the changes could take effect this

A November 2003 report prepared for the Senate Finance
Committee by the General Accounting Office (GAO), the investigative arm of
Congress, found rampant abuse by taxpayers who donate vehicles to nonprofits.
In addition to taxpayers inflating write-off claims for used vehicles to “blue
book” value instead of fair-market value, the report found that charities often
earn anywhere from 20 percent to 5 percent of the value donors claimed on their

The report tracked 54 donated vehicles, most of which were
sold at auction. In one instance, a donor valued a 1987 Volvo 740 at $3,000,
but the nonprofit’s final take was $35. Some charities lost money on the
donation after paying towing, repair and resale costs.

The GAO estimates that tax claims for vehicle donations cost
the federal government $654 million in revenue for 2000, but the report did not
estimate how much the IRS loses when donors use the higher “blue book” value
rather than fair market.

The Treasury Department and several senators are pushing for
stricter requirements.

According to the Treasury, closing the tax loophole on car
donations, as well as a crackdown on deductions for intellectual property and
patents, would raise about $4.8 billion over a 10-year period. Under a plan
submitted by the Treasury, the IRS would require taxpayers to get their vehicle
appraised prior to donation. Current IRS regulations require appraisal only if
the vehicle’s value is greater than $5,000.

“We encourage people to proceed carefully when donating
vehicles,” IRS Commissioner Mark W. Everson said. “But people should know that
in some cases, the donation is providing little value.”

Before donating a vehicle, the IRS advises that taxpayers
ask questions of the charity to determine how the vehicle will be sold — either
by the charity itself or a private fundraiser, like an auction house — and how
much of the sale price will be used for charitable purposes.

California law requires that nonprofits issue donors a
receipt that lists the mileage and condition of the vehicle for a state tax
deduction. It’s a model the federal government may turn to as a blueprint for
any vehicle donation reform.

While more stringent reporting at the state level has made
the taxpayer more honest, third-party retailers are still behind the curve. A
California study revealed that 80 percent of charities contracting with
fundraisers to run their car donation program received less than 60 cents for
every dollar value of vehicle donated.

However, smaller-scale car donation programs that handle
their own intake and sales, like Southern California Jewish Center or Chabad,
aren’t worried that future regulations will scare off potential donors.

Rabbi Moshe Bryski said Chabad of the Conejo, which recently
sent out an advertisement about its vehicle donation program to congregants,
takes in about a dozen cars every year that are then sold by a volunteer.

“Organizations that primarily get their cars donated from
people who care about the organization, not so much doing it for the tax
write-off but doing it to help Chabad, it’s not going to have an effect on us
at all,” he said.  

Car Alarm

You’ve read the newspaper ads or heard the pitches on the radio:Donate your old car to our worthy charity, which aidsorphans/immigrants/homeless/the halt and the lame, and enjoy agenerous tax write-off.

The American Red Cross is doing it, as is the National KidneyFoundation, Jewish Family Service, Jewish National Fund and Chabad.

And then there are the Jewish Foundation for Learning and theSouthern California Jewish Center. Never heard of them? Neither hasthe Jewish Federation of Greater Los Angeles or the Jewish CommunityCenters Association, so The Jewish Journal decided to do a littlechecking.

We called 1-800-362-2558 and asked the operator at the JewishFoundation for Learning for the name of the foundation’s director. Wewere referred to Carol Ruth Silver in San Francisco, although herphone number was unavailable. It wasn’t difficult to track downSilver, an attorney and former county supervisor who over the pastyear has served as the feisty spokeswoman for the Jewish EducationalCenter and as chair of its board of directors.

At its peak, the JEC ran one of the largest and most lucrativeused-car auction programs in the nation. It is now bankrupt, afterthe state attorney general’s office accused its founders, RabbiBentzion and Mattie Pil, of fraud, tax evasion and divertingcharitable funds to buy a house and stage a $40,000 bar mitzvah fortheir son. The Pils have denied any wrongdoing.

One of the JEC’s major programs was the Schneerson Hebrew DaySchool, which had an enrollment of 140 children, Silver said in aphone interview.

The Orthodox day school, now teaching 25 to 40 kids and housed ina Conservative synagogue, was not included in the bankruptcyproceedings. It is operating, legitimately, under the JewishFoundation for Learning auspices, as a “religious nonprofit”organization, with Silver, again, as chair of the board of directors.

The legal distinction between the school and the defunct JEC isimportant, explained state Deputy Attorney General Belinda Johns, whofiled the case against the JEC.

The JEC was classified as a “public benefit corporation” becauseits services extended to the general community, and it was thereforesubject to oversight by the attorney general. However, due to someastute lobbying, according to Johns, “religious nonprofits” areexempt from oversight by state authorities.

The Schneerson Day School is not affiliated with Chabad butfollows the teachings of the late Lubavitcher rebbe, Rabbi MenachemMendel Schneerson, said Silver. However, following objections byChabad to the use of the rebbe’s name, the day school changed itsname to Torah Day School.

It is the Torah Day School that is the main beneficiary of theJewish Foundation for Learning’s car sales, although Silver is alsotrying to resurrect some other JEC programs, which, she saidbitterly, “were destroyed by the attorney general.” These includedEnglish-as-a-second-language classes for Russian immigrants and akosher nutrition program for the elderly.

Silver said that she didn’t know how many cars were processed whenthe defunct JEC solicited donations under its own name, but that thecar auctions provided the bulk of JEC’s $2 million annual budget.

(According to state documents, JEC’s income actually amounted to$8.54 million in fiscal year 1996, almost all of it from car sales.Only $1.46 million, or 17 percent, of this income was spent oncharitable programs, the Jewish Bulletin of Northern Californiareported.)

The Jewish Foundation for Learning car drive was launched onlyrecently, mainly in the Los Angeles area, and “we hope to get enoughdonations by the end of the year to survive,” said Silver.

It took a bit more digging to find the Southern California JewishCenter, which has been running radio appeals for car donations forabout a year.

A phone call to 1-800-936-HOPE was answered by “Linda,” who couldonly give a post office box as the center’s address and identifiedthe director as Rabbi Shimon Kay. Linda wouldn’t give out Kay’s phonenumber but said that he would call back and send a brochure.

After a week’s silence, we called again and, this time, told Lindathat we were preparing an article for The Jewish Journal.

A few hours later, Kay called and quickly demystified the SouthernCalifornia Jewish Center as the fund-raising arm of the WestwoodSephardic Center, which is listed in the phone book.

A few days later, we dropped in unannounced at the center onWestwood Boulevard. We were greeted hospitably by Kay, to allappearances, a sincere and harassed young rabbi, who turned to thecar-donation pitch in some desperation to keep his operation going.

In a modest two-story building, the center squeezes in a day-carecenter for about 25 children, an upstairs synagogue shtiebl, twomakeshift Hebrew-school classes, and a tiny outdoor play yard.

The 32-year-old rabbi, a native New Yorker, said that he waseducated at the Chabad yeshiva. In 1990, he was sent to Los Angelesby the Lubavitcher rebbe, although he now has no formal ties to theChabad organization.

The Sephardic Center, serving mainly Iranian immigrants, with asprinkling of Moroccans, Israelis and Russians, started off well andattracted substantial private donations. It hit hard times two yearsago, when Kay lost the lease on a much larger facility.

Attempts to raise funds from established secular or religiousJewish organizations came to nothing, and Kay finally turned to thecar-donation program as a saving moneymaker.

Kay said that he had no exact figures on how much of his annual$300,000 budget is provided by the car program. But he estimated thatdespite constantly rising costs for radio spots, about 70 percent ofthe profits are plowed back into his programs.

That is considerably better than the 20 percent of profits usuallyoffered by commercial middlemen, which is one reason Kay handles thecar donations himself. On an average, he gets about five to six carsa day — not a bad showing, given the intense competition.

Kay appeared somewhat ill at ease when asked why he didn’t run thecar program under the Westwood Sephardic Center’s own name. “It’seasier to remember the name of the Southern California JewishCenter,” he said at one point, adding later, “I don’t want to makeothers jealous; I don’t want too much publicity.”

Johns, of the attorney general’s office, specializes in charitablefund-raising cases, and she has some advice for potential donors.

One is to check out whether an organization actually conducts theprograms it advertises, which may require a fair amount of research.In any case, she agrees that probably some 90 percent of donors careonly about the tax deduction rather than the charity’s particularcause.

Also make sure that the title of the car is properly and quicklytransferred, Johns counsels. Not infrequently, a charity allows anemployee to drive the car under the old owner’s title, and many adonor has received parking and traffic tickets months after givingthe car away.

The attorney general’s office has just compiled a useful brochureon charitable solicitations, which can be obtained by writing to theAG Public Inquiry Unit, P.O. Box 944255, Sacramento, CA94244-2550.