Treasury
Inspector General for Tax Administration
Office of Audit
PROCEDURES TO ADDRESS NONCOMPLIANCE WITH
THE REPORTING REQUIREMENTS FOR CONTRIBUTIONS OF MOTOR VEHICLES CONTINUE TO BE
INADEQUATE
Issued on September 11, 2009
Highlights
Highlights of
Report Number: 2009-30-116 to the IRS Deputy
Commissioner for Services and Enforcement.
IMPACT ON TAXPAYERS
The legitimacy of the values placed on donations of motor vehicles has
recently been questioned by the Internal Revenue Service (IRS) and
Congress. As a result, Congress passed
legislation limiting the deductions and adding reporting requirements. Individual taxpayers are required to file Contributions
of Motor Vehicles, Boats, and Airplanes (Form 1098-C) or a written acknowledgement
from the charity, in addition to Noncash Charitable Contributions (Form 8283), if their
charitable deductions claimed for donated motor vehicles exceed $500. Currently, taxpayers who may not be entitled
to deductions for charitable contributions of motor vehicles are reducing their
tax liabilities, which could result in a loss of revenue to the Federal Government
and inequitable treatment of taxpayers.
WHY TIGTA DID THE AUDIT
The objective of the review was to evaluate the effectiveness of the continuing implementation of
Provision 884 of the American Jobs Creation Act of 2004 and the effectiveness of the processing of
reported deductions for donations of motor vehicles to charitable organizations
2 years after its enactment. TIGTA also
evaluated whether the charities receiving the donated vehicles provided the
required documentation to the IRS.
WHAT TIGTA FOUND
The IRS issued additional guidance and developed a plan to improve
awareness of the current requirements for claiming deductions for charitable contributions
of motor vehicles; however, taxpayer noncompliance continues to be
significant. Additional procedures need
to be established to identify noncompliance with motor vehicle donation
requirements during returns processing. Additional
returns processing procedures will enable the IRS to address potential
noncompliance, as Congress intended in its legislation. Also, the IRS needs to match the Form 1098-C
information submitted by charities with the information on taxpayers’
returns. TIGTA estimated 92,037
taxpayers claimed unsubstantiated motor vehicle donations totaling $204 million
for the Tax Year ending December 31, 2007.
In addition, TIGTA estimated 63,972 taxpayers may have avoided paying
approximately $17 million in taxes for Tax Year 2007.
WHAT TIGTA RECOMMENDED
TIGTA
recommended the IRS
ensure that 1) returns without substantiation for charitable contributions of
motor vehicles are processed pursuant to math error authority, 2) procedures are
developed to match the information reported by charities on Forms 1098-C with
the information reported on taxpayers’ returns, and 3) outreach, educational material, and other methods be used to
ensure charitable organizations comply with the requirement to file Form 1098-C
with the IRS for each donated motor vehicle with a value in excess of $500.
In
their response to the report, IRS officials agreed with one of the three
recommendations. IRS officials agreed to
process returns
without substantiation for charitable contributions of motor vehicles pursuant
to math error authority. IRS officials disagreed to
match the information reported by
charities on Forms 1098-C with the information reported on taxpayers’ returns. The IRS believes the noncash contribution
review is better suited for the Correspondence Examination Program.
In addition, management
believes they have a substantial outreach program for motor vehicle donations
and have completed what is being recommended.
TIGTA
believes matching the information reported by charities with the information on
taxpayers’ returns would more effectively identify potential underreporting by
taxpayers claiming undue deductions for motor vehicle donations and could
facilitate the imposition of penalties on charities that do not provide the
required documentation to donors and the IRS.
TIGTA also believes the IRS has
had more than 2 years to make charities aware of the change in the law but our
analysis still identified an approximately 60 percent noncompliance rate. The
deficient cases in our samples were all filed after the IRS outreach was
available. Further, because the IRS is
not identifying noncompliant
charities and imposing
penalties when the charities fail to submit the required documentation,
compliance by charities may not improve.
READ THE FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2009reports/200930116fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov