IRS approves car-donation program.

• Author: Ochsenschlager, Thomas P.

In Letter Ruling 200230005, the IRS finally provided guidance on how to structure a car-donation program. In recent years, a deluge of radio and television advertisements from various organizations has pleaded for donations of used cars, boats, trailers and other items, typically claiming that taxpayers can deduct the item's "full market value." They even promise free towing if the item is not in operating condition.

This flood of advertising has not gone unnoticed. The IRS has issued a number of warnings in recent years (for example, to charities incorrectly implying that a donor can deduct "blue book" value for a car that is not running). It has also noted that in some charitable-giving programs, vehicles go directly to a car dealer; the charity never really takes title or bears any risk of loss. While many organizations have started programs, others may have shied away from the idea due to the Service's concerns.

Program Structure

The ruling was issued to a charity formed to find a cure for certain illnesses. The charity operates through local chapters, but the car-donation program is in the parent's name. It proposes to sign an agency agreement with a limited liability company (LLC) registered as a charitable fundraiser, which buys, stores, maintains, dismantles and sells used motor vehicles, vessels and other personality. An individual and his controlled corporation own the LLC. The charity has no other connection to these parties.

Under the agreement, the LLC will be the charity's agent, acting in the charity's name and subject to its review and approval. It will establish a toll-free telephone number, advertise for car donations, pick up the donated items, arrange for qualified appraisals (if needed), process, repair and sell the vehicles and do whatever necessary to accomplish transactions. It will pay all program costs, including repairing or maintaining the vehicles and selling or disposing of them under its own discretion (i.e., to sell, scrap or auction them).

The LLC will receive a percentage of the sales proceeds. The charity will be the equitable owner of the vehicles until sold, and will bear the risk of accidental loss, damage or destruction.

The LLC will provide the donor with a blue-book printout, along with a disclosure that "the printout does not in any way represent" the LLC's or the charity's opinion as to value. Donors will sign a certificate of donation and other paperwork needed to transfer title. The LLC will send...