Beware of Car Donation Scams
Oct 12, 2010 1:42 PM EDT
Have you ever wanted to donate a car to a charity? Your intentions may be worthy, but you may encounter unscrupulous people whose intentions are not to help the needy -- but to scam you. Here are some tips on how to avoid the car donation scam.
Be aware of the car donation process, says Sarah Lee Marks, author of "The Complete Internet Car Buying Guide" and owner of the car-shopping website MyCarlady.com.
"Understand how the donation cycle works for tax purposes. You can no longer deduct the Kelley Blue Book value of your car as if you sold it privately or traded it in," she says. "You are only allowed to take the donation value of the amount the charity will get for selling it at auction."
According to Marks, most charitable organizations asking for vehicles use third-party vendors to handle the pickup and disposal at the auction. "Make sure they come with preprinted forms, uniforms and a branded tow vehicle before you sign over the title," she says.
Make sure the charity is legitimate
To make certain you are investing in a worthy charity, start by researching the organization, says S.E. Day, author of "How to Legally Steal Your Next Vehicle and Save $1,000s."
To avoid the car donation scam, Day says, consumers can start by requesting several forms from the organization -- the charity's 501(c)(3) letter granted by the IRS, the incorporation document from the secretary of state's office in the state where the nonprofit is operating and the corporation bylaws for accepting vehicles as donations.
"Visit the charity, contact the IRS to inquire about the charity's viability, request its IRS Form 990 (nonprofit tax return) and make sure the title is signed by the company receiving the vehicle," he says.
Also, review the charity's financial reports to see how much of its money is used for charitable programs and administrative costs.
Stick with local 501(c)(3) nonprofits as well. If your charity is not a 501(c)(3) organization, your contribution will not be tax deductible, according to CharitiesNYS.com, a website for the New York Attorney General's Office. The IRS lists 501(c)(3) organizations eligible to receive tax-deductible charitable contributions in Publication 78. Depending on the size of your deduction, attach Form 8283 to your tax return.
Sign the title before donating the car
The IRS recommends car donors make sure to transfer the title of the donated car.
"It is not illegal for a charity to have an open title for a vehicle, but the ad valorem tax, registration and licensing fees remain the responsibility of the owner until the title has been properly closed with the charity being the recipient," says Day.
According to Day, the car donation scam occurs when the fraudster convinces the victim to turn over the car, without signing the title.
"The individual will advise the victim that he or she is not authorized to sign the title," he says. "He or she will inform the victim that the title has to be signed by the authorized personnel at the office."
With an open car title, the individual can sell the car to another person or to a used-car dealer for cash, Day says.
If you don't have a copy of the title papers, contact your state's department of motor vehicles, or DMV, to get them. And don't leave your license plates on the car. Return them to DMV or transfer them to another car.
"Make a copy of the front and back of the title after signing it over. Remove all plates and personal papers from the car and wipe out all garage door links (and information in) telephones and navigation computers, and cancel any remaining extended warranty insurance," Marks says.
To good to be true?
If you've managed to sidestep the car donation scam, you may be in line for some nice perks when you donate a used car to charity: tax deductions and incentives like vacation packages and gift certificates.
Steven J. Weisman, author of "The Truth About Avoiding Scams," says, "When charities offer these perks, it is important to note that the value of your donation for income tax deduction purposes is reduced by the value of the perk you receive."
If you donate a car valued at $5,000, and you receive from the charity a voucher for a vacation worth $1,000, you must reduce the amount of the tax deduction you claim by $1,000, making the deduction $4,000, he says.
IRS publication 561 provides the latest details on how to determine when and how much of a tax deduction may be taken for charitable donations, says Weisman. The IRS has a tool that helps determine the fair market value of items being donated.
John W. Van Alst, National Consumer Law Center staff attorney, suggests donating cars to charities that give them to low-income families for free or at subsidized costs. "It is better for these families and donors who may be eligible for a larger deduction than if they had donated to charities that scrap or resell vehicles," says Van Alst.
Charities that donate directly to low-income families can be found at the Opportunity Cars website.
What if you've been scammed?
If you realize you have fallen for the car donation scam after donating your car, you have options, says Jeannine Fallon, spokeswoman for Edmunds.com. "Report the charity to the attorney general or the consumer fraud investigation division of your state government," she says.
You also should check with your accountant on whether you can still claim a tax deduction for the car, Fallon says.
If you're careful, you can donate your car to charity without a hitch. Just ask Kimbirly Orr, a marketing consultant in Colorado. "Upon our father's death, my sister and I donated a classic 1979 Cadillac Seville to the Boys & Girls Clubs of Metro Denver. It was effortless and painless for sisters who had a lot more to deal with than parking a car," Orr says.