January 17, 2013
IRS Inaction on Noncash Charitable Contributions Resulting in Lost Revenue
As reported by The Chronicle of Philanthropy and BNA Daily Tax Report, a recent Treasury Inspector General for Tax Administration report estimates that approximately 60% of of claimed noncash charitable contributions (e.g., cars, boats, artwork, real estate) are reported incorrectly with little to no IRS enforcement. The report further estimates that more than 273,000 taxpayers erroneously reported $3.8 billion in noncash contributions in taxable year 2010 (i.e., the proper paperwork and appraisals were not filed), resulting in potentially $1.1 billion in lost revenues to the federal government. The IRS disputes the amount of revenue loss.
One of the primary areas of concern centers on car/vehicle donations. Although taxpayers are generally allowed to deduct the fair market value of property donated to qualified charitable donees, there are further limitations on car donations. Specifically, a car donor must substantiate, and not deduct more than, the amount the charity received from selling the car for cash. The report concluded that the IRS is not effectively enforcing compliance with the reporting requirements for motor vehicle donations. Over 35,846 tax returns filed for 2011 claiming $77 million in charitable donations of cars failed to comply with reporting requirements.
Senator Charles Grassley (R-Iowa), who chaired the 2005 law changes requiring greater taxpayer substantiation of the value of donated items, criticized the Obama administration's push to raise taxes on higher-income taxpayers, while "giving a free pass to those claiming high-value deductions for donations of vehicles, art, or securities.”
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