Exempt Organizations Advisory -IRS Provides Guidance on Information Reporting for Vehicle Donations

On January 6, the Internal Revenue Service issued Notice 2006-1, which provides guidance on reporting obligations for charitable organizations that receive contributions of motor vehicles, boats and airplanes ("qualified vehicles").

If a charitable organization receives a contribution of a qualified vehicle with a claimed value of more than $500 after December 31, 2004, the organization is required to provide a contemporaneous written acknowledgement to the donor. In addition, any organization that provides a contemporaneous written acknowledgment to a donor is required to report to the IRS the information contained in the acknowledgment. The report, which must be filed on Copy A of Form 1098-C, is due by February 28 (March 31 if filing electronically) of the year following the year in which the donee organization provides the acknowledgment to the donor. If an organization files more than 250 Forms 1098-C, it is required to file electronically.

Notice 2006-1 also states that the Service intends to impose penalties pursuant to Section 6720 on donee organizations that provide false or fraudulent acknowledgments of qualified vehicle donations to donors or fail to file the information report on Form 1098-C.

Notice 2006-1 compliments Notice 2005-44, which provides guidance on the allowable deduction for a charitable contribution of a qualified vehicle and the requirements applicable to the contemporaneous written acknowledgment that the donee organization provides to the donor. The new rules, adopted in the American Jobs Creation Act of 2004, generally limit the deduction to the actual sales prices of the vehicle when sold by the donee charity, and require donors to get a timely acknowledgment from the charity to claim the deduction.

However, donors may claim a deduction of the vehicle’s fair market value under the following circumstances:

• The charity makes a significant intervening use of the vehicle, such as using it to deliver meals on wheels.
  
• The charity makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.
  
•  The charity donates or sells the vehicle to a needy individual at a significantly below-market price, if the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

For more information on this topic, please contact Catherine W. Wilkinson, Suzanne Ross McDowell, or the Steptoe attorney(s) with whom you usually work.

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.