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October 14, 2009
Li-Yun Chien
TIGTA-PAO@tigta.treas.gov
(202) 622-6500

Taxpayers Claiming Unsubstantiated Vehicle Donations Avoid Paying Millions in Taxes

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit of taxpayer compliance with reporting requirements for motor vehicle donations.

The report concluded that some taxpayers did not provide the Internal Revenue Service (IRS) with sufficient documentation to substantiate their deductions for the charitable donation of motor vehicles. TIGTA also found that charities did not properly report contributions of automobiles, boats and airplanes. Furthermore, the IRS did not match information filed by charities regarding motor vehicle contributions with information on taxpayer forms.

In response to concerns regarding the legitimacy of the valuation of donations of motor vehicles, Congress included a provision in the American Jobs Creation Act of 2004 that added reporting requirements for individuals seeking a deduction for their donation.

TIGTA found that an estimated 92,037 taxpayers claimed unsubstantiated motor vehicle donations totaling $204 million in 2007. An estimated 63,972 of those taxpayers may have avoided paying approximately $17 million in taxes for 2007.

"The IRS's procedures to ensure that taxpayers meet all of the requirements for deducting charitable contributions of motor vehicles continue to be inadequate," commented J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA recommended that the IRS: (1) ensure that returns without substantiation for charitable contributions of motor vehicles are processed using math error authority (thereby allowing the IRS to assess additional taxes), and (2) match the information reported by charities on Forms 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, with the information reported on taxpayers' returns. TIGTA also recommended that the IRS continue to educate charities on the need to file Form 1098-C for each donated motor vehicle with a value in excess of $500.

The IRS agreed to review returns submitted without substantiation for charitable contributions of motor vehicles. However, the IRS rejected TIGTA's recommendation to match information reported by charities on Forms 1098-C with information reported on taxpayers' returns, claiming that such matching should occur as part of a correspondence audit. TIGTA disagreed with the IRS's response, noting that correspondence audits would review only a small number of returns with deductions for motor vehicle donations. The IRS also claimed that additional outreach to charities regarding the proper use of Form 1098-C was not needed. TIGTA disagreed with the IRS's claim, pointing to the 60 percent noncompliance rate among charities that are required by law to file Form 1098-C.