Can a church or other charity give away a car that was given to it? I was told no, but the church wants to give it away. Can the church legally do it?
This question raises interesting tax and fiduciary duty questions. It all depends on the person to whom the car is given.
If the church or other charity gives the car to an appropriate member of a charitable class within the program of the charity, it should be OK. A job training program that gives a used car to a graduating trainee to commute to a job where there is no public transportation would be a good example. If the church or charity gives it to a member of the board or other insider who is considered a “disqualified person,” it would be an automatic excess benefit if not treated as compensation to that person when the car is given. (See Ready Reference Page; Charities Must Avoid Excess Benefit Transactions.”) If it is given to someone else, one would have to question why, and whether it would be a breach of fiduciary to duty to the organization for members of the board to give away a valuable asset without receiving anything in return.
The charity also has obligations to the original donor if the donor wants to claim a contribution deduction, and must provide an acknowledgment of receipt, including a statement of intended use if the car is not to be sold right away. If the car is sold without substantial improvement, the charity has to give an acknowledgment of the sale price to the original donor. The original donor’s deduction may not exceed the gross proceeds of the sale, even if the fair market value is higher. (See Nonprofit Issues®, October 16, 2004.)
Sunday, January 23, 2011