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By Matthew Sinclair Brian Menzies has joked that he began the Longwood, Fla.-based Charity Cars to become the first car dealer to go to Heaven. Before that day arrives, however, he expects to go before a Congressional hearing and call on the government to establish regulations for car donation programs. He wants legislators to put an end to what he calls nonprofits "prostituting" their good names and tax-exempt status. His concerns echo those of others in the sector. And, the Internal Revenue Service (IRS) has stated it is looking into whether such programs enable donors to inflate deductions and enable organizations to enter inappropriate partnerships with for-profit companies. But there is little indication that anything will change soon. Though the IRS has gone through several changes in the past year, one thing that remains consistent is its stance on donations of automobiles. Statements from the IRS for several months have indicated it is looking into vehicle donation programs. And last fall, IRS instructed its field offices to focus more on the issue. What the IRS can’t do yet, however, is quantify how many cases it is currently looking at that involve inflating the value of donated cars or organizations having inappropriate business relationships with used car dealers. An IRS spokesperson said that there were, presumably, cases pending that include questionable car donations. But the service couldn’t say at this point whether car donation programs were a large problem. "We don’t have any way of putting our arms around the situation (at this time)," said a spokesperson. Marcus Owens, the former head of the IRS’s exempt organizations division and now practicing law with the Washington, D.C., office of Caplin & Drysdale, said it would be at least a year or two before the service could embrace the issue. "It takes time for that kind of a transmittal to work through into case selection, audit activity," he said. "A contentious case might come to public sooner." Owens explained that now that the field offices have been told to look at the issue, "they would design a program tailored to their geographic area and would select the best prospects for an audit for their locally based criteria." Since certain state attorneys general are also looking at the issue, Owens said lists of organizations that advertise such programs may already be in the works. Regardless of Menzies’ expectations, however, Owens said he doesn’t foresee congressional hearings concerning car donation programs in the near future. "I think the real sense of the situation is to see what the IRS is able to do to address the concerns," he said. "If the agency is able to deal with the situation administratively, that’s probably where it will remain." Advertising Any mention of car donation programs inevitably winds around to mention of the ubiquitous ads throughout local papers. Though the ads often mention the "Blue Book" value, referring to the industry guidebook the Kelley Blue Book, "you must know that these are guides. They’re not the final word," said Charity Cars’ Menzies. Charity Cars (see NPT April ’97 issue) gives needy applicants cars so they can get themselves to work, focusing primarily at this point on people coming off welfare. For the cars it gives away, Charity Cars is required by the IRS to hold a lien for three years. Menzies said he’s appalled at many of the advertisements he believes could easily mislead the public, who don’t know how much the charity receives for the donated vehicles. "I’m hoping the IRS does something in the next few years," Menzies said. Owens, the former IRS official, said car donation ads have the potential to reflect much of the sector poorly. "If it isn’t transparent to the average person it quickly becomes so, and it degrades the value of charitable advertising," he said. "I think it does tend to drag down the level of discussion and potentially the reputation of charities as a result." "It’s sad that nonprofits are prostituting their 501(c)(3) status when they engage with one of these for-profit centers," said Menzies, who is a licensed car salesman. "You put these car sharks with nonprofits, you know who’s going to get ahead." Owens added, organizations should keep in mind their relationship with a donor. "I think organizations need to remember that approximately 70 percent of people don’t itemize their deductions, so the deduction is of no use," he said. "You’re in danger of potentially irritating donors when there’s too strong a suggestion of a deduction." Low maintenance Still, some organizations view the programs as low maintenance fundraising opportunities. Joel Urdang, a trustee for the N.J. Lions Charitable Foundation, said the Stockholm, N.J., organization entered into a car donation program roughly 18 months ago. Though it started off slowly, the program picked up around the holidays and has garnered "low five figures," according to Urdang. "The cars are picked up by a for-profit company, a junk dealer, who in turn pays us so much per car," he said. "He gives them a receipt, but he can’t value the car." And, neither does the organization. Urdang stressed that a contract with the dealer must be drawn up that clearly outlines what is expected of each party, including detailed reports and timely payments. In the N.J. Lions Foundation program, as is reportedly the case with many car donation programs, the for-profit handles the advertising and telephone expenses and picks up the vehicles. "At the moment he’s doing most of the work," said Urdang, who added that the organization might get involved with public service announcements that mention the program. Urdang said that in light of the IRS’s intention to look into car deduction arrangements, the foundation might choose to alter its relationship. "We may do the advertising instead of the junk dealer," he said. "That may make a difference with the IRS." Harvard Palmer, vice president with Vehicle Donation Processing Center (VDPC), which is headquartered in Monrovia, Calif., said proceeds from car donations often represent large percentages of an organization’s revenues, even if the charity doesn’t receive a large percentage of an auctioned car’s sale price. VDPC represents nearly 50 organizations around the country, mostly based in West Coast states, where the company has registered as a charitable fundraising firm. Though he was reluctant to give figures, Palmer said, "A number of them get five-figure checks most months. A lot are less. And there are months they don’t get (any) money." A recent article in the Wall Street Journal reported the California Department of Justice found nearly $24 million in revenue generated by California car donation programs in 1997, of which less than $6 million went to charities. VDPC would not disclose a range of income for the charities. "There’s tremendous variance depending on the two factors: price at auction and the number of donations versus the cost of the media." He continued, "This is not collecting checks from people at swell parties. It’s a totally different thing. … Even though we do our darndest to match the media and market to the charity, to a great degree that’s not the motivation of the donor. As opposed to most charitable fundraising, (this is about) getting rid of a car." He added, "It’s been a godsend for the significant charitable enterprises whether it’s a two-person Council for the Blind or the Red Cross." Palmer said that nearly half the cars VDPC receives don’t run at the time they’re accepted. The average auction price for the cars is $400, which factors in those that might sell for $10. "We have had a few quality cars through the years," he said. "But I’m sure the number of ‘quality’ cars, if you want to define it as late model, nothing wrong with the car, is less than 2 percent. It might even be less than 1 percent." Palmer said he thought programs in which charities receive a flat fee per car, "screws it up from a tax perspective — according to Marcus Owens at least." In light of the IRS’s recent losses in other royalty issues, it’s reasonable to think there’s more to be heard on the tax status of royalties from car donation programs. "Clearly, if it’s strictly a royalty," Palmer said, "it makes the tax deduction — or tax shelter — more questionable." Palmer said not enough notice is paid to the static costs involved with car donations when legislators or the press evaluates programs. For example, he said, "The tow is, on average, $75," he said. "There’s no way getting around it." On top of that, auction fees and costs to the company "are in the neighborhood of a couple hundred bucks." If a donated car costs $200 to present at a dealer auction and sells for $205, he said, that’s going to do serious damage to the percentage that goes to the charity. "All our charities would rather have the five dollars than zero dollars," he said. "I would hope we’re good enough at this that the lost cars [where no money is made] are less than 15 percent," Palmer said, "but that’s going to vary by market and by media. There are charities that we’ve tried our hardest, the charities tried hard the media people worked hard, and for whatever reason we lose five figures before we give up." Getting there from here But there are programs that are not about the money as much as they are about putting people into cars they need to move forward in life. Menzies’ Charity Cars has been expanding, accepting cars throughout the nation, which its mechanics get into operable shape and then match with people coming off welfare. "We can get a car picked up," Menzies said, "see five pictures on the Internet and decide whether it’s worthwhile." The paper work can be done via the mail. Christine Bragale, spokesperson for Bethesda, Md.-based Goodwill International, said that while some Goodwills do accept donated vehicles, it’s not common. In a way, however, it’s not too different than giving a bag of old clothes. "In terms of how much your old shirt is worth," Bragale said, "what’s acceptable practice is fair market value. Goodwill does provide guidelines on what you can expect things to sell for, but it depends on the quality of the value and the shape that it’s in. That goes for cars as well." Craig Anderson, the human services director at Goodwill Industries of Northern New England in Portland, Maine, said the organization is working with the state through a revolving loan program to help referred TANF (Temporary Assistance to Needy Families) recipients to purchase vehicles. He said recipients could receive up to $5,000 for a three-year loan at a 5 percent interest rate, "regardless of credit history, unless they’re in bankruptcy proceedings." The new loan pool holds $750,000, Anderson said. It is established through Maine’s cooperative service and administered through Key Bank. "The demand will outstrip (the supply)," he predicted. The state contract is only for a year, but Anderson said it’s likely to be renewed. "Even after the year is out, the full pool is out, there’s still going to be support needs. It’s a good test balloon, a good demonstration project, and (it will) make a strong case for putting more money out there." Clients undergo an initial screening for eligibility, Anderson said. "We make sure an employment situation is secure (first)," Anderson said. "We’re working to be a resource in communities, so the auto is not always the choice people look at. (They need to) look at their work settings, look at car pooling or public transportation options." Together they establish a budget. Clients and the Goodwill representative visit dealers and work with the Maine Automobile Dealers Association to find discounts on vehicles and extended warranties. "Once the car is selected," Anderson added, "we help the person complete the loan package and finish that process of closing on the purchase … get it registered and get insurance." He continued, "The premise of the program is to set it up in such a fashion that it builds the normal stream as much as possible. We want the individual to experience sitting in the bank and (buying the vehicle.)
NPT staff writer Jeff Berger also contributed to this story
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