The Dark Side of Car Donations

They are a popular way to contribute to charities, but now shady operators taking advantage of people who donate their old cars are putting the would-be philanthropists on the fast track to an IRS nightmare.

With two old trucks to donate, Oregonian Herbert Young answered an ad in which a charity offered to tow away his vehicle. In return, he was to get a tax receipt and deduction, all while benefiting an amputees group.

"People that got their arms and legs or whatever were amputated can work on them and resell them or whatever," Young said. "It would be a perfect charity for me."

But the receipt never came. Young realized he had been taken.

Government officials said too often good intentions can end with bitter disappointment.

"When it comes to talking about charity it's always an issue of trust," Minnesota Assistant Attorney General Heidi Christianson said.

In Young's case, Victoria Cox, of the Oregon Department of Justice, said the amputees charity doesn't exist, and the paperwork doesn't pass the test either.

Cox agreed that it’s a sad fact that the onus is often on those who mean well.

"It's a donor-beware kind of environment," she said.

And where it can hurt most is in the wallet. Ask Bennett Weiner, who heads up the Better Business Bureau's Wise Giving Alliance, the nation's largest charity watchdog group.

"You may find out come tax time you can't deduct a dime," he said. "There are problems happening all over the country ... in terms of how much the charity gets, the non-deductibility of the gift and the questionable operators."

In Minnesota, state authorities say it's not uncommon for charities to hand over the work to third-party brokers who solicit and collect the cars. But in one recently settled case the charity never saw much money and, for the most part, the titles were never transferred.

"Very often the cars were left with the title in them, unlocked on the streets of St. Paul," Christianson said.

The car, in turn, could be stolen, involved in a hit and run, or hit with parking or speeding tickets — a real nightmare for its original owner.

Shady so-called charities are preying on the naïve on the East Coast as well.

An undercover Fox News Channel team had no problem tracking down charities promising top values for a 1987 Jetta.

In fact, the rep was apparently so eager for our donation, that team was offered a chance to get more than the Blue Book price for "extras" like leather seats. The rep even claimed that "150 percent" of the money would go to charity.

But the government isn’t taking a backseat to these car-based con men.

According to an internal IRS training memo, a crackdown on shady car donations may be imminent.

"They have to put the full market value of the vehicle, not just what any Blue Book would say," IRS spokesman Kevin McKeon said of the charity that offered to buy the Jetta.

And it’s not just a problem for those donating. Even a well-meaning charity could be in trouble if it pays an inflated price for a car — including possibly losing its tax-exempt status.

"The exempt organization may face problems if it's audited by the IRS and they may face penalties or other problems," McKeon said.

But there are good donation programs out there. It’s just a matter of smart shopping:

— "Protect yourself when you make the deduction, transfer the title in the charities name," Weiner recommended.

— "To be eligible for that deduction on your return, you need to be giving it to a 501c3 organization, an organization that has applied for exempt status," McKeon said.

— "Find out how much of the used car gift is actually going to go to the charitable organization. When the charity has no control over what is happening and gets a flat arrangement no matter what occurs from the used car broker, the IRS may consider that as not a deductible situation," Weiner said.

But the advice comes to late for Herbert Young, who's still willing to donate his trucks, but now is not sure who to believe.

"How can I trust any of these now?" he said. "Who can you trust?"