How to Handle Year-End Donations, Part 2

By Raul Rivera

In Part 1 of this blog series, we looked at the story of Pastor John who is the pastor of a resourceful church located near the bayous of Louisiana. Today, in Part 2 of this series, we continue with the story of Pastor John and the unique donations that his resourceful congregation gives during the holiday season.

Just as Pastor John was beginning to feel comfortable with receiving and managing unique donations, he was thrown another “curve ball”. Two prominent entrepreneurs within the church wanted to bless the church beyond the normal tithe they give to the church. One of the individuals decided to donate 2 cars to the church and the other wanted to donate an airboat that is commonly used in the bayou.

Once again, Pastor John found himself in a similar predicament of wanting to properly manage these donations so his members could receive the proper tax benefits for their donations.

What now?

Pastor John’s example story is a good case study for learning the rules of vehicle donations.

It is a blessing for many churches and nonprofit organizations that receive vehicle donations, however, there are certain steps that should be considered in the event that your church receives such a donation. Using Pastor John’s story, below are some steps to take if and/or when your church receives a generous donation of vehicles.

1. Issue Form 1098-C for vehicles valued over $500.

No matter the final decision for the use of the vehicles, Pastor John’s church must issue a  contemporaneous written acknowledgment to the donor if the vehicle donated is valued at more than $500. Copy B of Form 1098-C may be used as the contemporaneous written acknowledgment to the donor. Furthermore, Pastor John’s church must file Form 1098-C with the IRS for each vehicle contribution that has a claimed value of more than $500.

Form 1098-C collects all of the necessary information in order for the donor to claim a tax deduction for the donated vehicle on his tax return. Information on this form includes details such as:

• The donor’s name and taxpayer identification number (TIN)
• The vehicle identification number
• The date of the contribution, and
• If any goods or services were exchanged for the contribution of the vehicle.

Form 1098-C may be used as the contemporaneous written acknowledgment to the donor for vehicles with a claimed value of $500 or less. However, do not file Form 1098-C with the IRS for vehicles with a claimed value of $500 or less.

Keep in mind that it is the donor’s responsibility to determine the fair market value by finding similar vehicles with the same conditions, features, and operation. They should be certain to take into consideration mechanical troubles, high mileage, and excessive wear and tear when finding comparable vehicles to determine the value.

2. Be sure the title to the vehicle is transferred to the nonprofit.

In our scenario, Pastor John should immediately take care of the transfer of title for the vehicles. Whether the church plans on selling or keeping vehicles, it is important for the titles to be transferred to the church.

The rules in each state on how to handle the transfer of title for donated vehicles may vary. Therefore, it is important that you become familiar with your state’s law. However, for most states, the title transfer process involves the donor filing a form with the state’s department of motor vehicles (DMV). Transferring title is not only important for state requirements, but it also helps limit potential issues with the future use, donation, or sell of the vehicle by your organization.

3. Find a ministry use for the vehicle and establish the proper policies to manage them.

In doing an overview of his ministry’s needs, Pastor John may find that his ministry could put one or more of the vehicles to good use.

When a ministry chooses to use a donated vehicle for its tax-exempt purpose, it is called a significant intervening use.

IRS Publication 4302 tells us that for a vehicle to qualify as significant intervening use, your church “must actually use the vehicle to substantially further its regularly conducted activities, and the use must be considerable.” In addition, the use of a donated vehicle qualifies as significant intervening use dependent upon “its nature, extent, frequency, and duration.”

Examples of significant intervening uses are:

• using a vehicle to pick up people for church services,
• delivering meals to the homeless,
• church trips in a donated van or bus,
• operating an after school program and using the vehicle to shuttle children to field trips, or traveling for evangelism campaigns.

 
Furthermore, according to Publication 4302, if your church intends to make a significant intervening use of the vehicle(s), the contemporaneous written acknowledgment to the donor must include the following:

1. a statement certifying that the charity intends to make a significant intervening use of the donated vehicle,
2. a detailed statement of the use of the vehicle.
3. a detailed statement of the duration of the use,
4. a certificate that the vehicle will not be sold before completion of use.

If your charity plans to make material improvements to the vehicle, you will also need to state that in the contemporaneous written acknowledgment, including a description of the improvements and that the vehicle will not be sold until improvements are made.

4. Create a vehicle program for those in need.

Vehicles donated to your organization may also be donated to individuals who are in need a vehicle for daily life or sold significantly below fair market value. Again, if this in your plan for donated vehicles, the contemporaneous written acknowledgment to the donor should state the intended purpose for the vehicle. It should also state that the gift or sale of the vehicle is in direct furtherance of the your church’s plan to relieve the poor and distressed who are in need of transportation.

5. Sell them!

Your church may also sell donated vehicles and use the profit for its tax-exempt purpose. If the vehicle is sold for more than $500, your charity must give a donor letter explaining that the vehicle was sold at arms length between two unrelated parties, including the date of sell, proceeds and a statement that the donor’s deduction amy not exceed the gross proceeds from the sale.

In the event that your church receives a donated vehicle valued at $5,000 or more, and sells, exchanges, or disposes of the vehicle within 3 years of receiving it, then your church will be required to file form 8282 with the IRS.

This form is used to gather the necessary information to ensure that the donated vehicle was intended to further the organization’s tax-exempt purpose, and to determine the vehicle’s fair market value. Form 8282 must be submitted within 125 days after the disposal, exchange, or sale of the donated property. Like many forms issued by the IRS, failure to file Form 8282 will result in a $50 penalty fee per form.

Form 8282 helps the IRS to ensure that items, such as vehicles, donated to an organization are actually useful, rather than an individual donating something that is useless only to receive a tax deduction for the donation. If the IRS questions the charitable donation of an item on Form 8282, the donee’s tax return may be reviewed, however, your church will have done its due diligence in submitting the form to the IRS for review.

Conclusion

Car donations can be a great blessing to your church. Whether you decide to keep, donate, or sell a donated vehicle, your church can still benefit greatly from that gift. Knowing how to properly handle and manage such donations is the beginning of being ready to receive those donations.

Stay tuned for the third and final installment of this blog series as we conclude the story of Pastor Joe by exploring how he and the church can protect both monetary and non-cash donations that they receive this holiday season. Until then, if you find yourself with questions pertaining to how your church should receive and handle certain donations, please do not hesitate to call our office, toll free, at 877-494-4655.

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