Regulators eyeing gifts of used cars; Md., U.S. officials find many charities unlicensed for programs; Big money for nonprofits; Donations of autos aren't tax-deductible in certain cases


State and federal regulators, taking a more aggressive look at charities that seek donations of used cars, are finding that many groups -- from tiny schools to huge health organizations -- don't follow the laws.

Only a fraction of the charities that run such programs in Maryland are licensed to do so. Many delegate responsibilities to third parties, leaving titles blank. Some donations might not even be tax-deductible.

"Charities are jumping on this bandwagon thinking that this is going to be the greatest fund-raiser since pizzas," says state Assistant Attorney General Jonathan W. Acton II, principal counsel to the Maryland Motor Vehicle Administration. "In point of fact, it's not a commodity that everybody can or should handle."

No one keeps track of how many charities are seeking car donations in Maryland, but a survey of officials and charities indicates that thousands of cars are given away in the state every year.

The programs can mean big money for charities. The National Kidney Foundation, which has one of the longest-running programs in the country, has quadrupled its take from car donations since the program began about 10 years ago. The National Kidney Foundation of Maryland alone received 2,189 cars in 1998.

"It is by far our biggest moneymaker," says Nancy Latini, communications director of the Maryland organization.

Concerned about the new official scrutiny, the Kidney Foundation has been notifying potential donors that it has the proper licenses and that donating their old clunkers might not result in a deduction.

Charles D. Schaub, manager of business licensing and consumer servicesfor the MVA, says the programs are multiplying rapidly. "My guess, and it's strictly an off-the-wall guess, is that there's at least 60, 70 charities out there doing this," he says.

Only 21 charities have gotten licenses as wholesale car dealers -- a requirement for anyone who sells or encourages the sale of five or more vehicles a year.

The MVA acknowledges that it cannot keep up with all the charities that sidestep the requirements.

"We just do not have the manpower or the resources to be able to attack this problem as aggressively and as quickly as we would like to," says MVA spokesman Richard Scher.

IRS attention

Nationally, the Internal Revenue Service has started scrutinizing vehicle donation programs, warning charities that their advertising might be misleading.

Some charities imply that donors can get "full Blue Book value" or deduct "100 percent," when only the fair market value can be subtracted on a tax return -- if the taxpayer itemizes.

In fact, depending on the way a charity runs its program, giving a car might not be deductible.

Many charities hire third parties -- usually licensed wholesale dealers -- to pick up donors' cars and take them either to auction or to junkyards.

Dealers or auction houses give charities the proceeds from the car sales, and the charities send a receipt acknowledging the gift to the donor.

But if the charities never see the cars -- and get the proceeds from third parties only after the cars are sold -- the donations might not be deductible, says Domenic J. LaPonzina, spokesman for the IRS in Baltimore.

"The deduction only applies when the gift goes to the charity," LaPonzina says. "It's not unlike giving a check. If you're giving a check, would it be to Joe's Salvage or to the charity?"

Titles not taken

One indicator of whether the charities received the gifts, IRS officials say, is whether they take title to the cars. In Maryland, charities frequently aren't listed on titles -- though state law requires it, Schaub says.

Take Melwood Horticultural Training Center in Upper Marlboro, which runs group homes and other programs for the developmentally disabled in several Washington suburbs.

Melwood advertises its car program on local radio stations. But beyond providing information about its program over the phone, Melwood has little to do with the cars given to it, says Don Pollock, Melwood's director of development.

It uses a towing company to pick up the cars and take them to auction. Auction houses sell the cars, returning the proceeds to Melwood minus a $90 fee.

Melwood is not licensed as a dealer, and its name doesn't appear on the titles of cars that are sold, Pollock says.

"We sort of stayed out of that end of the business," he says. "We would prefer to stay out of that end of it."

When told that the charity was supposed to be licensed and list itself on the car title, Pollock says no one had told him that.

But he says that Melwood's car program has come to raise $1 million a year after expenses. While that's only a small fraction of its $45 million operating budget, Pollock says, the program has made "the difference between a bare-bones operation for people with disabilities and being able to do a quality job."

Red Cross program

The American Red Cross of Central Maryland also lacks a license for its program, which is advertised only on its Web site and in its newsletter for supporters. It doesn't take cars older than 1984 models.

The program has grown, though it remains a small part of the $6.5 million that the organization raised last year. In 1996, when the Red Cross began the program, it got 15 cars; with the current fiscal year half over, it has received 43, a number the organization expects will double.

The average take per car is $777, says Barbara Davis, director of financial development.

Titles on the cars don't carry the Red Cross name, Davis says. "Actually, we really don't deal in the cars besides being on the contributing end," she says.

Out-of-state groups

Out-of-state organizations are getting into the game in Maryland, too.

One example is Heritage for the Blind, which advertises its toll-free number heavily in Maryland. The organization, based in Brooklyn, N.Y., publishes cassettes and large print and Braille texts for the visually impaired. Heritage is not licensed to deal cars in Maryland, according to state records.

"No one informed us of that requirement," says Mel Zachter, a consultant to the organization. "If that's something we should be doing, we'll do it."

Some charities have obtained the proper state licenses to facilitate the sale of cars.

Jody Palmisano, a Baltimore wholesale dealer who handles donation programs for area charities such as the Baltimore Area Council of the Boy Scouts of America and Kids Fund, says he requires nonprofits to have the state licenses in hand before he will work with them.

He also says he brings a representative from the charity with him to auction when cars are sold and requires that the charity's name be on the car titles.

Unwelcome return

With some charities, a donor can see his old car come back to haunt him.

That's what happened to Anthony J. Florio Jr., a police officer for the state Department of General Services, who gave his white 1986 Camaro last March to the Anne Arundel County Society for the Prevention of Cruelty to Animals.

He loved the car, but the engine had blown a gasket and the Camaro wasn't running.

"It kills me to see those little dogs and everything," Florio says. "I thought I would help them out a little bit. I knew I would get more as a tax deduction than selling it to somebody."

But a couple of weeks ago, he got a notice: The car, still titled in his name in the MVA computer, had been impounded in Baltimore and was racking up hundreds of dollars in fees.

Florio, who lives in Pasadena, was amazed that the car was on the street.

"There's no way that car would have passed inspection," he says.

Impoundment problem

Gene C. Baker Sr., Baltimore's acting towing manager, says that about once a month a car that has been donated to charity -- yet is still titled to the original owner -- arrives in his impound lot on Pulaski Highway. That problem arises much more often in private sales between individuals, he points out.

To keep from having to pay impound fees, owners must prove that they returned the car's tags and canceled insurance, and produce the charity's receipt.

Florio had those documents, but not everyone does, Baker says.

"Some of these cars come back to haunt people three years later," he says.

The Anne Arundel County SPCA's vehicle donation program has been successful enough to spur the building of a new wing at its Annapolis shelter.

The program is run by a volunteer -- an engineer so dedicated to the cause that he refers to himself not as Dennis Gosewisch, but as "Dennis, the SPCA guy."

The shelter began soliciting cars three years ago after a group of volunteers worked feverishly on a bake sale but raised only $218. Now Gosewisch handles about 100 cars a year.

"It's taken over my life," he says.

Clashing with MVA

Gosewisch acknowledged that he has had a few cases like Florio's, which he attributes to an irresponsible wholesaler with whom he used to work.

But he says he can easily resolve those problems by showing records to the impound lot managers.

Gosewisch says he has clashed with the MVA about his program and finds the state laws unsympathetic to charities that are scraping to fund good works.

"I am not going to do bake sales," he says. "It's just a shame the MVA doesn't have any way to deal with this."

Pub Date: 2/13/00

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