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Saturday, December 24, 2005

More Abuse In Regard to Automobile Contributions to Charity

Under recent changes in the law, the charitable deduction of a taxpayer who contributes an automobile to charity cannot exceed the sales proceeds received by the charity. This was to shut down a perceived abuse - that taxpayers were contributing their old cars to charity and taking a charitable deduction in excess of the true value of the automobile.

There is an exception to this rule - if the automobile is sold by a charity to a needy individual at a price less than fair market value, the limitation to the sales price will not apply. The IRS now believes that this exception is giving rise to further abuse. They believe that charities that sell automobiles at auction are improperly claiming the application of this exception.

The IRS has announced that it will not accept acknowledgments by a charity that the exception for sale to a needy individual apply in regard to sales at auction. They further warn charities that they may be subject to penalty for providing such acknowledgments.
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