2005 Tax Law Changes - Acknowledgement Required for Car Donations

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Summary

Qualified organizations that receive car donations after December 31, 2004, must give the donor a written acknowledgement of the donation. This rule generally applies if the claimed value of the donated vehicle is more than $500.

Boats, aircraft, and other vehicles. This rule also applies to donations of boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways. However, this rule does not apply to donations of inventory.

Contents of acknowledgement. The acknowledgement must include the following information.

  1. The donor's name and taxpayer identification number.
  2. The vehicle identification number or similar number.
  3. A statement certifying the organization sold the car in an arm's length transaction between unrelated parties.
  4. The gross proceeds from the sale.
  5. A statement that the donor's charitable contribution deduction may not be more than the gross proceeds from the sale.
  6. The date of the contribution.

However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the organization, within 30 days of the contribution.

The organization also must provide this information to the IRS.

Penalty. There is a penalty for knowingly furnishing a false or fraudulent acknowledgement or knowingly failing to furnish a required acknowledgement in the manner, at the time, and showing the information required. For details about this penalty, see section 6720 of the Internal Revenue Code.

Commentary

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On 9-1-05 the IRS released final drafts of Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes with instructions http://www.irs.gov/pub/irs-pdf/f1098.pdf http://www.irs.gov/pub/irs-pdf/i1098.pdf

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