Donation to charity's agent.

Rev. Rul. 2002-67 explains that individuals may claim a charitable deduction for automobiles donated to a charity's agent. According to the ruling, the agent's written acknowledgment substantiates the gift and explains when a vehicle may be valued using an established pricing guide.

Many charities that solicit individuals to contribute vehicles for a tax deduction use a for-profit business to operate the program. Three potential questions arise:

1. Has the automobile been donated to the charity or to the for-profit business that runs the donation program?

2. Is the gift properly substantiated?

3. Is the vehicle valued at fair market value (FMV)?

Rev. Rul. 2002-67's two situations illustrate the issues. Both involve a charity (C) and a for-profit business (B). These two organizations establish an agency relationship valid under applicable state law. The agreement provides that B, acting as C's authorized agent, will administer a fundraising program for C for a fee. C has the power to review and approve B's activities under the agreement.

Acting on C's behalf, B (1) solicits donations of used cars, (2) accepts, processes and sells the cars, (3) transfers the sales proceeds to C (less B's fee) and (4) gives each donor substantiation of the contribution, including an acknowledgment that contains the required Sec. 170(f)(8) information.

In the ruling's first situation, a donor who itemizes transfers a used car to B and does not receive anything of value in exchange. A used-car guide values the donation at $4,500 for a car of the same make, model and year as the donor's car and sold in his area, if the car is in excellent condition ($3,000 if in average condition; no value is listed if in poor condition).

According to the guide, a car is in (1) excellent condition if it has no defects; (2) average condition if it has some defects, but is safe to drive; and (3) poor condition if it needs substantial mechanical or body repairs or is unsafe to drive. The donor's car is in average condition. The facts are the same in the second situation, except that the donor's car is in poor condition.

Rev. Rul. 2002-67 concludes that the donor's transfer of the car to B as C's authorized agent is treated as a transfer to C. However, the determination of whether an agency relationship exists is based on local law (not all contractual relationships result in an agency relationship under local law).

Because C has authorized B to act as its agent in administering the fundraising program, B's written acknowledgment to the donor meets Sec. 170(f)(8)'s requirements.

In the first situation, $3,000 is the FMV of the donor's car (and the charitable donation). The FMV of a single donated car may be established by using an established used-car pricing guide, but only if it lists the sales price for a car of the same make, model and year, sold in the same area and is in the same condition as the donated car. A donor may also value a car "by another reasonable method."

In the second situation, because the used-car pricing guide does not list a sales price for vehicles in poor condition, the donor cannot use it to value his car. He must establish the car's FMV using some other reasonable method (perhaps a written valuation at a used-car lot).