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Beware of car donation scams

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Highlights
  • Before donating a car to charity, make sure the group is legitimate.
  • The IRS recommends that donors make sure to transfer the car title.
  • Charities offer incentives such as vacation packages and gift certificates.

Have you ever wanted to donate a car to a charity? Your intentions may be worthy, but you may encounter unscrupulous people whose intentions are not to help the needy -- but to scam you. Here are some tips on how to avoid the car donation scam.

Be aware of the car donation process, says Sarah Lee Marks, author of "The Complete Internet Car Buying Guide" and owner of the car-shopping website MyCarlady.com.

"Understand how the donation cycle works for tax purposes. You can no longer deduct the Kelley Blue Book value of your car as if you sold it privately or traded it in," she says. "You are only allowed to take the donation value of the amount the charity will get for selling it at auction."

According to Marks, most charitable organizations asking for vehicles use third-party vendors to handle the pickup and disposal at the auction. "Make sure they come with preprinted forms, uniforms and a branded tow vehicle before you sign over the title," she says.

Make sure the charity is legitimate

To make certain you are investing in a worthy charity, start by researching the organization, says S.E. Day, author of "How to Legally Steal Your Next Vehicle and Save $1,000s."

To avoid the car donation scam, Day says, consumers can start by requesting several forms from the organization -- the charity's 501(c)(3) letter granted by the IRS, the incorporation document from the secretary of state's office in the state where the nonprofit is operating and the corporation bylaws for accepting vehicles as donations.

"Visit the charity, contact the IRS to inquire about the charity's viability, request its IRS Form 990 (nonprofit tax return) and make sure the title is signed by the company receiving the vehicle," he says.

Also, review the charity's financial reports to see how much of its money is used for charitable programs and administrative costs.

Stick with local 501(c)(3) nonprofits as well. If your charity is not a 501(c)(3) organization, your contribution will not be tax deductible, according to CharitiesNYS.com, a website for the New York Attorney General's Office. The IRS lists 501(c)(3) organizations eligible to receive tax-deductible charitable contributions in Publication 78. Depending on the size of your deduction, attach Form 8283 to your tax return.

Sign the title before donating the car

The IRS recommends car donors make sure to transfer the title of the donated car.

"It is not illegal for a charity to have an open title for a vehicle, but the ad valorem tax, registration and licensing fees remain the responsibility of the owner until the title has been properly closed with the charity being the recipient," says Day.

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According to Day, the car donation scam occurs when the fraudster convinces the victim to turn over the car, without signing the title.

"The individual will advise the victim that he or she is not authorized to sign the title," he says. "He or she will inform the victim that the title has to be signed by the authorized personnel at the office."

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