Senate panel questions overvalued deductions

WASHINGTON — The Senate Finance Committee, responding to findings that taxpayers who donate vehicles to charities tend to overstate their value, plans stiffer restrictions on deductions for those and other big-ticket donations of land or property.

The new requirements, expected to be proposed early next year, would be aimed at curtailing deductions that far exceed the worth of the donated property.

Committee leaders want to use any money the government saves under the stricter rules to offset the cost of a new tax deduction for cash donations to charities, which would be available to taxpayers whether or not they itemize their deductions.

"Donations of land, art and intellectual property are all raising concerns. The Finance Committee will look at significant reforms in this area as we consider the charitable giving bill early next year," said Committee Chairman Charles Grassley, R-Iowa.

The committee’s look at charitable deductions stemmed from an investigation by General Accounting Office auditors into tax deductions for donating vehicles to charity. The investigators presented their findings to the panel in April and delivered their final report on Friday.

The report examined 54 specific vehicle donations and found that the charities received 5 percent or less of the value donors claimed as deductions on their tax returns.

Taxpayers are instructed to estimate a donated vehicle’s fair market value, or the amount it would sell for on the market, taking into consideration its condition and mileage. Deductions for donated vehicles lowered taxpayers’ liability by $654 million in 2000.

Charities often reap only pennies on the dollar of a car’s estimated worth because the vehicles often are sold at wholesale auctions. The proceeds are split between the charity and the company that organizes vehicle donations, which use some proceeds for advertising, car towing and the auctions.

"The tax breaks individuals receive for these donations are costing the government millions of dollars a year. I don’t want to discourage donations, but it’s clear that changes are needed, including increased oversight," said Sen. Max Baucus of Montana, the committee’s top Democrat.

The IRS looks for evidence of overstated tax deductions for donated property, including cars, but has not pursued any of those leads for two years. IRS officials told the auditors they would rather devote scarce audit resources to tax shelters and other problems that drain more dollars from the U.S. Treasury.