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CITY SMART | Street Smart

Charities Find Profitable Trade in Car Donations

More nonprofits are seeking vehicles to raise funds but officials warn that it takes a lot of money for advertising, towing and repairs.

November 08, 1996|DAVID COLKER | TIMES STAFF WRITER

America's needy want your car.

Organizations aiding the homeless, disaster victims, foster children and Russian Jewish immigrants are filling the airwaves with radio advertisements suggesting you make a donation to them of your vehicle--slightly used or lawn ornament junker--and benefit from the tax deduction.

The ads are unavoidable if you listen to one of the local all-news stations.

"I hear them every morning when I come in to work," said Keith Kimball, who has more than a passing interest in those ads. Kimball works for the Los Angeles office of the Internal Revenue Service.

"The law hasn't really changed in the last few years, so I don't entirely understand the proliferation of it," he said. "I guess groups just figured out this was a way to raise money."

Indeed they did. The Southern California office of the American Red Cross, which in June 1995 became one of the first local organizations to start a car donation campaign, has cleared more than $1 million, Red Cross executives say.

So it's no surprise that several other nonprofit groups have jumped on the bandwagon, although with varying degrees of success.

"Some groups get into this thinking it's easy money," said Paul Westerveld, president of Donated Property Systems, a Van Nuys car sale company that operates the Red Cross program under contract. But to succeed in the car donation game, in the face of much competition, it takes considerable money for advertising, towing and car repair, program administrators say.

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In return for the car, the donor gets to take a deduction from income equal to the fair market value of the vehicle. The IRS defines that as "the price at which property would change hands between a willing buyer and a willing seller," according to an IRS publication cited by Kimball.

That might be, but is not necessarily, the price to be found in the auto industry's Blue Book of used car prices. "That's a guide, but we tell people they have to adjust for the condition of the vehicle," Westerveld said.

It is up to the donor to declare what the car is worth--and the IRS may challenge the figure if the return is audited.

"When the value hits $5,000, all of a sudden the IRS is not looking toward the donor to make the assessment," Westerveld said. "They have to go to a licensed appraiser."

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Once Westerveld's company accepts a car (it doesn't have to be running but they won't take a stripped vehicle), the company tows it away. If it's a junker, the car is sold to a salvage yard. If it would run with repairs, those are done by his company's mechanics.

Running cars are sold at the company lot or at auction.

Some smaller charities, such as Hawthorne-based Fresh Start, which provides services to the homeless, put volunteers to work repairing the cars.

The Red Cross' deal with Donated Property Systems calls for the company to shoulder all expenses in the operation, including advertising, telephone operators and car repairs.

Basically, the Red Cross contracts the company to run the entire car donation business in return for 50% of the profits.

"We had to make sure there would be no risk to us, financially," said Nancy Kindelan, chief financial officer for the Los Angeles Red Cross office.

The Red Cross also must approve all advertising copy and monitors the company's operation. "We had to make sure there was no risk to us, reputation-wise," said Kindelan, who added that she sometimes calls the company anonymously, pretending to be a customer.

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