Auto Donation Programs Could Drive Congress to Action.

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Author: Collins, Bruce D.

The Radio Spots announce daily, "Donate your car to charity for big tax savings!" The highway billboards blare at you, "Got a clunker that won't start?" The newspaper ads urge you to "Unload the lemon" and do good at the same time. These are the come-ons for automobile donation programs, which have proliferated in recent years. They exist because the tax code allows you a deduction from personal income tax for goods donated to charities.

In my view, they are also red carpet invitations to Congress to step back into the non-profit sector with more legislation to save us from ourselves. Just as a series of high-profile scoundrels prompted the intermediate sanctions law and then the much stricter Form 990 disclosure rules, so too will these multimedia ads for car donation programs attract the attention of lawmakers. Usually I am loath to make predictions like this, but the harbingers of eventual congressional intervention are as obvious as a pimple on a first date. Let's take them one at a time.

State treasuries are losing too much tax revenue. This upsets state legislators, who do not object to deductions for goods donated to charities. But they are fully aware that donors tend to overvalue their cars, some of which may not even run, when they claim the deduction on their federal and, hence, state taxes. California legislators have already offered legislation to cut down on the excesses of the programs. If California actually does something, Congress will certainly take heed.

The federal treasury is also losing tax revenue. Enough said.

In May Treasury official Marcus Owens departed from his prepared presentation to a group of non-profit professionals in Washington, D.C., to mention these automobile donation programs. He acknowledged some of them are effective on behalf of the sponsoring charities, but he also noted the charities rarely use the cars, many personal deductions are probably overstated and most Americans are probably misled as to the true relationship between the charity and the donated car. He noted that charities may receive as little as $20 per car in a straight royalty deal with a commercial car collector, and some deals are simple flat fees in exchange for the use of the charity's name. Thus, we have a federal official laying the groundwork for regulatory follow up.

For-profits are using the non-profits to make profits. This is the set up for outrage among some donors who will fuel complaints to state attorneys general, state and federal legislators, and news stories and columns such as this one.

Hypocrisy generally finds a home in any capital city, but it must be properly masked in order to live comfortably. As some donors become miffed that their used cars wind up in chop shops, auction houses and scrap yards rather than for the use of charities directly, the cozy relationship between the charities and the for-profits becomes less tenable.

A 1996 California study revealed that, whereas charities kept 37 percent of the funds collected for them by commercial fundraisers, they kept as little as 20 percent of the proceeds from auto-donation programs conducted in their names. Numbers like that tend to grate on policy makers.

The promotion and operation of too many car-donation programs tendS to undermine too many good things. The attraction of easy cash is a siren song to many charities. They wind up essentially selling their good names to commercial businesses that in turn have no compunction about distorting the meaning of the charitable deduction to potential donors.

This heavily advertised distortion in turn tempts too many taxpayers to overvalue their cars when taking deductions. Some really think their junky rust bucket is worth the full Blue Book value as the same car in pristine condition. Others know better but choose to stretch the truth on their returns. Our voluntary tax system does not benefit from these temptations.

Just as William Aramony's United Way did not describe the entire charitable sector, neither do the most blatant car-donation programs describe all of them. There are many such programs operated on for profit and non-profit bases that provide fair returns to charities. Some of them even provide Cars for use by the charities.

But it's not the good guys who inspire Congress. It is always the bad actor on the fringe who attracts the oversight committee chairman. And, as the radio spots, billboards and print ads proliferate, the profile of the automobile donation programs will remain high. It is only a matter of time before Washington steps in to make us do what the law and our conscience already requires.

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By Bruce D. Collins

Bruce D. Collins is corporate vice president and general counsel of C-SPAN. E-mail: collins@c-span.org