We are in the final of our series of articles dealing with how churches handle contributions. Our first article gave general rules for contributions as they relate to churches. Please see general reporting requirements for the full article. Our second article dealt with non-cash donations. Please see the non-cash contribution requirements for the full article. Our third article dealt with contributions of stock and IRA distributions. Please see the stock and IRA distribution requirements for the full article.
This current article will focus on how churches, donors, and the IRS handle contributions of cars, boats, and airplanes given to churches.
The IRS has developed guidelines regarding the donation of qualified vehicles to charities, which includes churches. The IRS has defined a qualified vehicle as :
- A car, or any motor vehicle manufactured mainly for use on public streets, roads, and highways,
- A boat, or
- An airplane
It should be noted that a car donated by a person who owns a car dealership would not be considered a qualified vehicle, but rather a donation of inventory.
In most cases, the donor will transfer title of the vehicle to the church. Each state has different requirements regarding vehicle registration and title transfer. Please contact your local Department of Motor Vehicles to ensure that is being handled correctly. The donor will also provide the church with a claimed value of the vehicle. Once the church has the vehicle, they must determine if they are going to sell it, keep it, or give it to a needy person. The value of the vehicle also determines what type of reporting the church must provide.
Reporting Requirements of the Church:
Basically, the reporting requirement for the church depends if the donor valued the vehicle at $500 or less or at more than $500.
If the vehicle is valued by the donor at $500 or less, the church has two options on how to report the contribution. The two options available are:
- Provide a contribution receipt to the donor that lists the description of the vehicle, but not the value. Please refer to the non-cash article for details on the contribution receipt for non-cash donations.
- Provide the donor with IRS Form 1098-C with Box 7 checked. In this instance where the value is determined to be $500 or less, the form should not be filed with the IRS.
If the vehicle is valued by the donor at more than $500, the church must file IRS Form 1098-C. Please see IRS Form 1098-C "Contributions of Motor Vehicles, Boats, and Airplanes" and Instructions for Form 1098-C for more details.
In order for the donor to claim an income tax deduction for the vehicle, the church must furnish copy B of Form 1098-C to the donor no later than 30 days after the:
- Date of sale if the car was sold at an auction by the church. or
- Date of the contribution if the church is going to keep the vehicle for use by the church or if they are going to give it to a needy individual.
Penalties That Could be Imposed on the Church:
The church could face penalties imposed by the IRS if they fail to furnish IRS Form 1098-C to the donor, if they furnish a false or fraudulent acknowledgment or if they fail to furnish the acknowledgment in the manner and time required. These penalties all relate to the timely and accurate completion of Form 1098-C.
Income Tax Deduction For the Donor:
The donor can usually deduct the smaller of the gross proceeds from the sale of the vehicle by the church or the vehicle’s fair market value on the date of contribution. If the gross proceeds is the higher number, the donor must attach Form 1098-C that they receive from the church to their tax return. There are two exceptions to the above mentioned rule. The exceptions are:
- If the church decides to keep the vehicle and use it in church operations or if they keep it and make improvements to it before transferring it, the donor can generally deduct the fair market value at the date of contribution. This will be handled on the Form 1098-C that the church will provide to the donor.
- If the church gives the vehicle or sells it to a needy individual at a price below fair market value, the donor can generally deduct the fair market value at the date of contribution. Again, this will be detailed for the donor on the Form 1098-C that the church will provide to the donor.
Thank you for joining Icon Systems in this series on contribution reporting. We hope this has been informative to you. As always, please consult your CPA because you may have tax situations that are unique. Additionally, IRS rules are subject to change.