Revisions to tax rules aim to curb charity abuse
Posted on Monday, September 4, 2006
Uncle Sam may want you, but he doesn’t like the looks of your boxers.
One administration removed from President Clinton, who famously claimed a tax deduction for used underwear he donated to the Salvation Army, Washington is ushering in new tax rules to discourage donors from taking write-offs for goods that are in lousy repair or really aren’t worth much.
Charity executives say the rules, embedded in the Pension Protection Act that President Bush signed last month, aim to eliminate deductions for such gifts as old socks and crock pots that don’t quite work anymore.
Would-be benefactors may also want to look twice at their stuffed moose heads: Under the new rules, those who give the gift of taxidermy can no longer write off the trophies at appraised value. That means they will be worth a lot less at tax time.
The raft of revisions comes as Congress moves to curb charity abuses while simultaneously adding incentives for giving — such as allowing donors to tap individual-retirement accounts to make charitable donations without paying income tax on the money withdrawn.
The IRA change alone has “substantial” potential to stimulate giving, especially among the well-heeled, said John Nazzaro, president of Heart of Arkansas United Way, in North Little Rock.
The United Way of America estimates IRA gifts will amount to $ 400 million over the next two years.
It remains unclear, however, just how things will change for donors dropping off bundles of old clothes or household goods at a Salvation Army or Goodwill counter.
The new law says taxpayers may claim a deduction only if the items are in “good used condition or better.” Then they may claim the fair-market value of the donated items.
But the Internal Revenue Service has yet to put in place regulations specifying how much a pair of bellbottoms are supposed to be worth and who is supposed to screen out the junk in the tons of merchandise flowing to charities every year.
Grocery and trash bags bulging with clothes and linens were piled nearly to the ceiling of the Goodwill International processing plant in downtown Little Rock last week. The lumpy mound would have completely filled many a house.
“This is what we call ‘ The Pile, ’” said Gail Holmes, events and job coordinator for Goodwill Industries of Arkansas. It gets bigger around Christmas, she said.
But Goodwill workers were steadily reducing the pile. Tossing garments into bins, they separated jeans from shirts and culled the clothes worthy of a Goodwill rack from the rejects to be pressed into bundles and sold to rag dealers, who resell them by the pound in Africa or South America.
One large East Coast usedclothes exporter is listing a mixed lot of Grade A “African Royale” bales for 40 to 45 cents a pound. “South American Imperial” Grade A was 80 to 85 cents a pound, while “European Grade Special Mix” was $ 1. 60 for summer fashions and $ 1. 15 for winter-weight clothes.
The Little Rock clothes processors also turn up treasures — such as the black pearl ring, with diamonds and gold, that turned up about six months ago, Holmes said. The workers also have plucked mink coats, $ 600 men’s suits and even a replica LeBron James Cleveland Cavaliers jersey from the towering mound of bags, said supervisor Cindy Cantrell. Such happy finds are held back for special auctions.
When donors bring the old clothes in, Goodwill gives them a receipt. But the receipt does not record a value — that’s up to the donor to decide.
It apparently still will be. But to help carry out the new law, Goodwill spokesman Dave Barringer said, the charity has been asked to draw up a valuation guide. A donor will be able to flip through the pages to find an old pair of Jordache jeans, for instance. There will still be judgment calls, Barringer said, but the guide should help standardize tax values.
Until now, they have largely been guesses, he said: “Let’s say you and I each donate the same pair of pants. You might write it off for $ 3, and I might write it off for $ 10.” It turns out that valuations of stuffed African bongos have also been all over the board.
Some taxidermy appraisers have assigned safari trophies such as bongos — striped forest antelopes with curvy horns — a replacement value that includes the cost of flying to Africa to bag one, said Greg Crain, director of the National Taxidermy Association, in Slidell, La. That could be as much as $ 30, 000, Crain said.
Such tax write-offs, when exposed in The Washington Post, drew harsh criticism from lawmakers that hunters were bankrolling entire African safaris by “donating” mounts to museums that never even displayed them.
A quick glance at the stuffedbongo market suggests a far lower replacement value: At a Lolli Brothers taxidermy auction in Missouri this spring, a full bongo mount sold for $ 3, 850.
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