Accept car donation for Non Profit

Technical topics regarding tax preparation.
#1
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The client is a small not for profit. A donor inquires if she can donate her car to the non for profit for the Executive Director to use and get a deduction.

The not for profit is not in the business of food delivery or any activities that would need to use the car substantially. Can the car be treated as a benefit provided to the Executive Director?

I need to come up with suggestion.

I have the following proposals:
a. Set up the car donation program. Sold the car and Non profit get the money. Donor gets a tax deduction.
b. Do not accept the donation.
c. Keep the car. Give it to the executive as benefit. Donor gets a tax deduction.

I am not quite sure if C is the right thing to do. Please help.
 

#2
MilesR  
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Someone can correct me but I think for option C the donor only gets a donation if it is sold. Otherwise who knows what the value is and the donor needs a 1098-C form from the org in order to claim the deduction of the vehicle.

I think only A or B are the available options.
 

#3
Nilodop  
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Several thoughts:
This goal A donor inquires if she can donate her car to the non for profit for the Executive Director to use and get a deduction.
is inconsistent with this solution Set up the car donation program. Sold the car and Non profit get the money. Donor gets a tax deduction.

This one (and the first one) Keep the car. Give it to the executive as benefit. Donor gets a tax deduction.
omits that the exec will be taxed on receipt of the car. And raises, to me, whether it's kind of a devious way to get s deduction for the donor for soethingb that's been pre-arranged and is not really for the use of the charity, in that I assume they were not planning to give the exec a car. It's a step transaction, contrived for a tax benefit.

What's wrong with the donor's selling the car and donating the proceeds?
 

#4
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Nilodop wrote:Several thoughts:
This goal A donor inquires if she can donate her car to the non for profit for the Executive Director to use and get a deduction.
is inconsistent with this solution Set up the car donation program. Sold the car and Non profit get the money. Donor gets a tax deduction.


This one (and the first one) Keep the car. Give it to the executive as benefit. Donor gets a tax deduction.
omits that the exec will be taxed on receipt of the car. And raises, to me, whether it's kind of a devious way to get s deduction for the donor for soethingb that's been pre-arranged and is not really for the use of the charity, in that I assume they were not planning to give the exec a car. It's a step transaction, contrived for a tax benefit.

What's wrong with the donor's selling the car and donating the proceeds?


My client indicated that the Exe Director probably does not want to upset the donor and tries to find a solution.

You read my mind. I was uncomfortable with my own recommendations because I keep questioning the motive behind the minds of the donor and even the Executive Director.

a/ So if you were me, would you tell the client straight out that keeping the car is possible but there are tax consequences and it does not look right. Do you think it will jeopardize the exempt status (giving the exe director a car to use which mainly would be for personal and occasionally for charity purposes)?

The Exe Director has no pay at the moment. The client suggested that the car could be a benefit given to the exe director as compensation.

b/ The charities really do not need the car in their core programs. Can they still take the car and then give it to the Exe Director as benefit/compensation? Does that look legit at all?


c/ I will also take your suggestion of recommending the donor to sell the car and donate the money.

d/ Selling the car and give to the charity

I think that the donor may think that it would be a waste because his car is quite new. He may really want to give it to the exe director to use but that would mean that he may have gift tax issue. That may be the reason my client asks if the charity can accept the car.
 

#5
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Is your client even able to itemize deductions?
 

#6
JR1  
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I think to keep it simple, let the donor give the car, give them the 109_C form....now the NFP owns it. Have the Exec. Dir buy it or take it as comp and gross up for taxes and call it a day. Or just sell it if the ED doesn't want it or willing to pay for it.
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#7
MilesR  
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How are you going to fill out the 1098-C if the charity keeps it? The donor needs the value from the charity unless there's an exception. In your scenario, it's my understanding that the donor won't get a deduction unless it is either sold or the charity uses it for a "significant intervening purpose" like using it daily to deliver food to needy kids for a specified time BEFORE it is sold (this is taken from IRS publication 4303).

I don't think the director using it here and there is really a significant intervening purpose and maybe more of a benefit to the director. If you are looking for a deduction, it has to be sold to an unrelated party (not the director).
 

#8
JR1  
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Yep, someone needs to come up with a value, and indeed it will be must be sold. Either out or to the ED...either way.
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#9
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What if the non profit acceps the car and gives it to theExe Director to use, calculate the taxable benefit to the Exe Director using Annual Lease Vaule Method.

The car will not be significantly used by the organizarion.

Is this legit? How do we come up with a value for 1098-c and can donor get a deduction?
 

#10
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I read the instruction of 1098 C. it seemed to me that in orderto have a deduction, a sale has to occur. the charity can sell at Market to an unrelated person, give isell it below Market to someone in need. the charity can also retain it for significant use or make Improvement to it for the moment. so in my client case, to accept the car and give it to the executive director as benefits does not seem to be allowedfor the donor to claim a charitable deduction. Do you agree?
 

#11
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MilesR wrote:How are you going to fill out the 1098-C if the charity keeps it? The donor needs the value from the charity unless there's an exception. In your scenario, it's my understanding that the donor won't get a deduction unless it is either sold or the charity uses it for a "significant intervening purpose" like using it daily to deliver food to needy kids for a specified time BEFORE it is sold (this is taken from IRS publication 4303).

I don't think the director using it here and there is really a significant intervening purpose and maybe more of a benefit to the director. If you are looking for a deduction, it has to be sold to an unrelated party (not the director).


Thanks for your input. Subsequently I read through the instructions and came up for the reason that the not for profit should not accept the car at all because they really have no use of it. And the donor may probably not able to deduct it at all.
 

#12
JR1  
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Again, they can, IF the Exec Director even wants it and is willing to pay fmv for it. Don't jeopardize the 501(c)(3) status....
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#13
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JR1 wrote:Again, they can, IF the Exec Director even wants it and is willing to pay fmv for it. Don't jeopardize the 501(c)(3) status....


Yes. "Don't jeopardize the 501 (c)(3) status" was the phrase I kept using in the conversation.
 


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