Car donations once played a huge role in the fundraising strategy at Melwood, a Washington charity that helps people with developmental disabilities find jobs.
At its peak in 2004, it received nearly $11-million from selling about 29,000 donated cars.
But that all changed in 2005, when a new federal law sought to crack down on Americans who exaggerated the value of their cars to get bigger tax breaks.
Nationally, car donations fell 78 percent, from $2.6-billion in 2004 to $573-million in 2008, the latest year for which data are available.
At Melwood, the number of cars donated dropped to 4,700 last year, and it raised just $2-million after expenses.
Despite the falling donations, some charities say soliciting cars is still worthwhile. And with Congress considering a new measure that would loosen the restrictions on deductions for donated vehicles, some groups hope they might be able to make car-fundraising appeals more lucrative.
“Every other type of funding we get is designated for a specific project or program,” says Janice Frey-Angel, Melwood’s former chief executive. “With our car-donation program, it’s not designated, and that’s precious unrestricted money we can use to keep the lights on.”
Middlemen Benefit
Still, that money is much harder to attract than it was before the 2005 law change.
Now when donors give a car worth less than $500 to charity, they are supposed to base their tax break on the sum the car would garner if sold, using references such as the Kelley Blue Book.
If donors give a vehicle worth more than $500, they must wait until the car is sold and base their deduction on the resale price.
Under the old law, donors could use the market value for cars worth up to $5,000. That allowed many donors to claim that their vehicles were worth more than what they would actually fetch on the open market, says Sen. Charles Grassley, the Iowa Republican who pushed to change the law.
Adding to the problem, he says, were organizations that collected the cars and sold them for charities, often taking a big cut of the proceeds.
“The middlemen who handled the transactions and the taxpayers who took the inflated donations received the most benefit from the old structure, not charities,” says Mr. Grassley, citing a 2003 report by the U.S. Government Accountability Office.
Among its examples: a 1983 truck that sold for $375 and provided just $31 for the charity, while the donor took a $2,400 tax deduction.
Preventing Abuse
But other lawmakers think the 2005 law went too far.
To spur more car donations, Rep. John B. Larson, Democrat of Connecticut, has drafted a bill that would allow donors of cars worth less than $2,500 to base their deduction on the fair-market value.
The 2006 changes “were focused on addressing abuses within the system,” Mr. Larson said in a letter to other members of Congress, but “they inadvertently created a serious new problem causing car donations to plummet and thousands of charities to reduce services.”
His measure, he says, would “protect against abuse without scaring away donations altogether.”
Nearly half of all members of the House of Representatives have agreed to add their names as sponsors of Mr. Larson’s bill, and it is awaiting review by the House Ways and Means Committee. Many charities are also cheering the measure.
Though similar bills have been proposed in the past and failed, Mr. Larson’s legislation has a good chance of getting the committee’s approval if lawmakers consider a major tax package later this year, says Ellis Brachman, Mr. Larson’s press secretary.
But it may not get much further. Senator Grassley opposes any efforts to change the car-deduction rules, saying that the House measure seeks too big a change.
“In this fiscal environment, the taxpayers can’t afford to subsidize big tax breaks for something that gives only pennies to charity,” says Mr. Grassley. “And charities still solicit car donations, so they apparently find the current set-up beneficial.”
Guy Fischer, chief development officer at the American Cancer Society, which raised nearly $10-million from car donations before the law changed, says legislators need to find a better balance.
“I don’t disparage Congressional efforts to make ethical laws, but we really want them to consider the impact on charities when making these decisions,” Mr. Fischer says. “These tax benefits really do make a difference.”
Donors’ Motivations
Even in the face of the stricter rules, many charities are finding ways to make car donations worthwhile.
Donors who might balk at giving thousands in a cash donation to charity sometimes are willing to give a car worth thousands of dollars, says Mr. Fischer.
A car donor may also have different motivations than someone who writes a check to a charity, he says.
“When someone gives a cash contribution, it’s usually because they have an affinity to the charity, but when someone donates a car, it’s driven primarily by the fact that you have an old car that you need to dispose of, and you’ve heard about car donations,” Mr. Fischer says. “It’s motivated more by personal circumstances.”
In 2004, the American Cancer Society received 16,000 donated cars, which brought in $9.6-million in revenue. By 2009, that number had dropped to about $2.3-million.
The charity stopped soliciting cars in 2010 because it didn’t attract enough money, says Mr. Fischer.
Now the organization is back in the car fundraising game, this time getting help from a private company to run the entire effort, including soliciting the gifts, picking up old vehicles, and selling them.
“There’s still a marketplace for car donations,” says Mr. Fischer. “There’s a huge number of older vehicles in the United States and a lot of charitable intent.”
Goodwill of Greater Washington is taking a similar approach. The charity was on the verge of ending its car solicitations because of the loss of contributions caused by the 2005 law.
But instead it hired National Charity Services, a private company.
Brendan Hurley, a senior vice president at Goodwill, says the move has paid off. Goodwill received about 600 vehicle donations in 2011, 125 more than in 2004.
National Charity Services markets the program, runs a 24-hour call center, arranges vehicle pickups and sales, and completes all the paperwork, says president Roger Bryan. In exchange, the company collects 50 percent of the sale price of every vehicle. The setup produced about $297,000 for the charity last year, after National Charity Services took its cut.
Instead of hiring a contractor, Melwood, the social-service organization, became one.
It now runs a call center, picks up donated cars, and handles paperwork for other charities, charging them $90 for each transaction. By doing so, it brings in about $75,000 a year, Ms. Frey-Angel says.
“We thought, Why not offer our services to other nonprofit and charge a fee?” she says. “Most nonprofits can’t afford the operational piece. We offer that.”
