Regulators eyeing gifts of used cars

Md., U.S. officials find many charities unlicensed for programs

Big money for nonprofits

Donations of autos aren't tax-deductible in certain cases

February 13, 2000|By Kate Shatzkin | Kate Shatzkin,SUN STAFF

State and federal regulators, taking a more aggressive look at charities that seek donations of used cars, are finding that many groups -- from tiny schools to huge health organizations -- don't follow the laws.

Only a fraction of the charities that run such programs in Maryland are licensed to do so. Many delegate responsibilities to third parties, leaving titles blank. Some donations might not even be tax-deductible.

"Charities are jumping on this bandwagon thinking that this is going to be the greatest fund-raiser since pizzas," says state Assistant Attorney General Jonathan W. Acton II, principal counsel to the Maryland Motor Vehicle Administration. "In point of fact, it's not a commodity that everybody can or should handle."

No one keeps track of how many charities are seeking car donations in Maryland, but a survey of officials and charities indicates that thousands of cars are given away in the state every year.

The programs can mean big money for charities. The National Kidney Foundation, which has one of the longest-running programs in the country, has quadrupled its take from car donations since the program began about 10 years ago. The National Kidney Foundation of Maryland alone received 2,189 cars in 1998.

"It is by far our biggest moneymaker," says Nancy Latini, communications director of the Maryland organization.

Concerned about the new official scrutiny, the Kidney Foundation has been notifying potential donors that it has the proper licenses and that donating their old clunkers might not result in a deduction.

Charles D. Schaub, manager of business licensing and consumer servicesfor the MVA, says the programs are multiplying rapidly. "My guess, and it's strictly an off-the-wall guess, is that there's at least 60, 70 charities out there doing this," he says.

Only 21 charities have gotten licenses as wholesale car dealers -- a requirement for anyone who sells or encourages the sale of five or more vehicles a year.

The MVA acknowledges that it cannot keep up with all the charities that sidestep the requirements.

"We just do not have the manpower or the resources to be able to attack this problem as aggressively and as quickly as we would like to," says MVA spokesman Richard Scher.

IRS attention

Nationally, the Internal Revenue Service has started scrutinizing vehicle donation programs, warning charities that their advertising might be misleading.

Some charities imply that donors can get "full Blue Book value" or deduct "100 percent," when only the fair market value can be subtracted on a tax return -- if the taxpayer itemizes.

In fact, depending on the way a charity runs its program, giving a car might not be deductible.

Many charities hire third parties -- usually licensed wholesale dealers -- to pick up donors' cars and take them either to auction or to junkyards.

Dealers or auction houses give charities the proceeds from the car sales, and the charities send a receipt acknowledging the gift to the donor.

But if the charities never see the cars -- and get the proceeds from third parties only after the cars are sold -- the donations might not be deductible, says Domenic J. LaPonzina, spokesman for the IRS in Baltimore.

"The deduction only applies when the gift goes to the charity," LaPonzina says. "It's not unlike giving a check. If you're giving a check, would it be to Joe's Salvage or to the charity?"

Titles not taken

One indicator of whether the charities received the gifts, IRS officials say, is whether they take title to the cars. In Maryland, charities frequently aren't listed on titles -- though state law requires it, Schaub says.

Take Melwood Horticultural Training Center in Upper Marlboro, which runs group homes and other programs for the developmentally disabled in several Washington suburbs.

Melwood advertises its car program on local radio stations. But beyond providing information about its program over the phone, Melwood has little to do with the cars given to it, says Don Pollock, Melwood's director of development.

It uses a towing company to pick up the cars and take them to auction. Auction houses sell the cars, returning the proceeds to Melwood minus a $90 fee.

Melwood is not licensed as a dealer, and its name doesn't appear on the titles of cars that are sold, Pollock says.

"We sort of stayed out of that end of the business," he says. "We would prefer to stay out of that end of it."

When told that the charity was supposed to be licensed and list itself on the car title, Pollock says no one had told him that.

But he says that Melwood's car program has come to raise $1 million a year after expenses. While that's only a small fraction of its $45 million operating budget, Pollock says, the program has made "the difference between a bare-bones operation for people with disabilities and being able to do a quality job."

Red Cross program

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