A Case of Unintended Consequences?
Goodwill, the Salvation Army, the Society of St. Vincent de Paul and Volunteers of America have banded together nationally to oppose the change, worried that a rule intended to crack down on supposed tax cheats will dry up donations of high-value goods.It started with cars in 2004. Now Congress is considering legislation to close what it sees as another tax loophole for the charitably inclined, to the chagrin of donation-dependent nonprofits.
The Joint Committee on Taxation proposed in January capping charitable deductions of household goods like clothing, furniture and electronics at $500 per taxpayer per year to help close a $311 billion tax gap.
Goodwill, the Salvation Army, the Society of St. Vincent de Paul and Volunteers of America have banded together nationally to oppose the change, worried that a rule intended to crack down on supposed tax cheats will dry up donations of high-value goods.
Goodwill Industries of San Francisco CEO Deborah Alvarez-Rodriguez fears the worst. In the first two months of 2005, since the rules governing automobile donations changed, the Goodwill has received 30 percent fewer cars than it did last year.
“Anything that becomes an obstacle toward convenience for donors has a direct impact,” she said.
Starting in April, San Francisco’s Goodwill will launch a study to try to ascertain how much the legislation would affect donor behavior.
Others are already trying to draw conclusions.
“Of course Ebay will get wealthier for it,” Peter Wise, executive director of the St. Vincent de Paul Society of San Francisco said of the proposed deduction cap. With people who move and many repeat donors in a single year, “a lot of people donate more than $500 in-kind in true, fair-market value, and I can imagine people saying ‘I’ll not donate that one, I’ll go sell it.'”
Goodwill receives 3,000 tons of material donations from 450,000 individuals a year. Reselling those items at its 17 Goodwill stores generates 87 percent of its $21 million budget. And donations allow Wise to give away an average 75 outfits a day to the needy. “Any decline in donations will have a huge impact,” he said.
Alvarez-Rodriguez worries that the proposed legislation, largely spearheaded by Sen. Charles Grassley, R-Iowa, has not assessed the extent of supposed tax fraud. Already, individuals claiming deductions over $500 must file a separate form, any donations valued over $5,000 must be appraised, and the IRS itself issues guidelines to assess fair market values.
The Joint Committee on Taxation did not estimate how much tax revenue is lost by individuals overstating the value of donated goods, but Alvarez-Rodriguez cited a previous committee report estimating that tightening the rules would help the government recoup just $1.9 billion over 10 years.
Nonprofits already have experienced the challenges of competing for donations with the rise of for-profit re-use options like Ebay. Donors with the best quality goods — the ones whose donations could total more than $500 — are the most likely to be put off by the deduction cap, Alvarez-Rodriguez said, noting that the Bay Area has more high-end donors than many other locations.
“We’re not even sure what problem the federal government is trying to fix here. We’re not seeing people try to take advantage of the system,” Alvarez-Rodriguez said. “Thirty percent of donors never even ask for a receipt.”
URL: http://msnbc.msn.com/id/7254046/
Tags: Philanthropy