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We have been bombarded with advertising
from many charities to donate our old automobiles and take a tax deduction
for the fair market value on our tax returns. Some ads go so far as
to state that "one could save more in taxes than he would get by selling
or trading-in the automobile."
The IRS has been reviewing these ads and
the annual tax returns of these charities along with the tax returns of
those individuals who made donations. They have discovered that some
charities actually received as little as $25 from the sale of automobiles
that taxpayers claimed were worth several thousands of dollars and this
has cost the government millions of tax dollars.
Taxpayers who claim a deduction for more
than $500 for all contributed property, must complete Form 8283 and attach
it to their tax return. They must disclose the name and address of
the charitable organization, a description of the donated property, the
date of the contribution, the date the taxpayer acquired the property, how
the property was acquired, the taxpayer's basis (cost) of the property,
and how the fair market value was determined. If they claim a
deduction in excess of $5,000, the taxpayer must also disclose a summary
of the overall physical condition of the property, the appraised
fair market value of the property and the appraiser must sign the form.
Determining the fair market value of a
used automobile is not an easy task. Taxpayers should have current
photographs of the exterior and interior of the automobile to substantiate
that the car was in very good or excellent condition. Legitimate
offers from purchasers can help establish a fair market value.
However, a note from your friendly neighborhood used car salesman will not
do. In fact, the IRS has stated that the Blue Book value will not
be acceptable unless taxpayers show that they have adjusted the Blue Book
values for the condition of the automobile.
The IRS is considering issuing safe
harbor values that taxpayers may use. If the taxpayer wishes to
claim a larger deduction, they would be required to obtain an appraisal
from a qualified appraiser. The IRS is also considering limiting the
deduction to the amount the charitable organization receives from the sale
of the automobile.
Claiming a large deduction for an old
beat-up automobile is an effective method of asking the IRS to audit your
return. With the high amount of attention that this deduction is
getting from the IRS and the press, having the proper documentation to
support the deduction is a must. |
