IRS Releases Form 1098-C for Contributions of Motor Vehicles, Boats and Airplanes
Form 1098 C 2005
Form 1098 C 2005 Instructions

 By Michael E. Batts, CPA

 

 As previously reported in The Nonprofit Watchman™, Congress passed a new law effective for the year 2005 governing charitable contributions of vehicles (including boats and aircraft) donated to charities for which the claimed value is more than $500.  As a general rule, the contribution deduction for such a gift is limited to the charity’s gross proceeds from the sale of a donated vehicle.  Exceptions are provided in the law, however, for cases in which the donated vehicle is significantly used by the charity or is significantly modified by the charity.  In addition, the law requires charities receiving such donations to provide certain documentation to donors to substantiate vehicle contributions and to assist donors in determining the amount of related deductions.  The charity is also required to report certain information to the IRS regarding vehicle contributions it receives where the claimed value is more than $500.

 The IRS has recently issued Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, for use by a charity in reporting to the IRS the information required under the new law.  A copy of Form 1098-C may be used by the charity to provide the required acknowledgment to the donor, but the form is not required to be used for that purpose (the charity may provide the acknowledgment to the donor in any reasonable manner, as long as the acknowledgment contains the required information).  The new Form 1098-C is, however, required to be filed with the IRS as discussed below.

 Under the new law, the written acknowledgment must generally be issued by the charity to the donor within 30 days of: (1) the sale of the vehicle, or (2) in the case of an acknowledgment including a certification as to significant intervening use or material improvement by the charity, the contribution of the vehicle.  However, for donations made before September 2, 2005, the written acknowledgment will be considered timely if it is issued within the time frame specified above or, if later, October 1, 2005.  It should be noted that the October 1, 2005 deadline for providing the acknowledgment is not applicable if the charity has not yet sold the donated vehicle.

 The Form 1098-C must be filed by the charity with the IRS by February 28, 2006 (March 31, 2006 if filed electronically), for contributions of vehicles during 2005 for which the claimed value is more than $500. 

 Neither the instructions to the Form 1098-C nor the guidance issued earlier this year by the IRS have addressed the scenario in which the charity intends to sell the vehicle but has not done so for an extended period, or has not determined whether it will use or sell the vehicle.  While the current guidance doesn’t explicitly say so, unless the rules are modified there is a de facto requirement that the charity make that determination quickly, and if the vehicle is to be sold, to sell it quickly.

 Electronic copies of the new Form 1098-C and its instructions are attached to this e-mail for your convenience.

 Copyright © 2005 used by permission from the The Nonprofit Watchman^™
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