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Funding Your Charity with Car Donations

By Rick Watkins
December 28, 2007

Funding your Charity with car donations, on the surface, seem to be a pretty straightforward proposition. A donor gives your Charity a car and receives a tax deduction, and your Charity gets a sizeable donation. But unlike cash donations, car donations (or any kind of vehicle donation, for that matter) are fraught with hidden dangers, complications, and pitfalls. Let's examine in detail the car donation process, and see what lurks beneath this seemingly simple transaction.

The Vehicle Donation Process

The step-by-step process of accepting the donation of a vehicle works something like this (with a few variations depending on the state in which the donation originates):

  1. Your Charity promotes its Car Donation Program (or receives a dedicated car donation via the Website).
  2. A donor decides to call your 800 number and donate their car (or boat, or whatever physical asset is approved for donation in your program).
  3. A representative of your Charity (perhaps a professional car donation specialist) answers the phone and takes the appropriate information (which, again, may vary from state to state).
  4. The representative provides the donor with important information concerning the donation process, tax considerations, how the value of the donation is determined, and so forth.
  5. The representative, having gathered the required information and having answered the donor's questions, schedules a local towing company to pick up the vehicle and provide a receipt.
  6. The vehicle is then delivered to a regional auction company for sale.
  7. Your Charity (or your vehicle donation processing company) collects the funds.
  8. The donor receives properly filled out and authorized tax forms, in order to receive the appropriate tax deduction at the next tax filing.

In principle, this process isn't rocket science. But as the old saying goes, the devil is in the details. Let's carefully examine each step:

Promoting Your Car Donation Program with PSAs

First, before any donor calls, they must be aware that your Charity operates a vehicle donation program. And in order to make the general public aware of your vehicle donation program, you'll need to promote it. All Non-Profit Organizations are entitled to free Public Service Announcements (PSAs), and as such are in a prime position to educate potential donors about their donation programs.

Using the system of PSAs is an exercise in audio or video production, and it's not as simple as it seems (but fortunately, the better car donation processing companies have excellent skills in this area, having done it so much).

The message may be fairly simple, but you need to be careful not to oversell the offer. You shouldn't quote any particular value, and don't imply that all vehicles qualify. And while it's likely that most donors will receive a substantial tax deduction, some donors may not receive any benefit from additional tax deductions. It's important to emphasize that the donor should seek the advice of a professional tax preparer or CPA before counting on a deduction.

Answering Donor Questions

The next step, when the donor calls in, is also of critical importance. A very poor outcome would be an unanswered call, an unprofessional answer, or just low-quality customer service. The variety of questions donors ask and the many concerns they have all play into the customer service provided by the representative of your charity. While you'll undoubtedly receive some donations no matter what, excellent customer service, prompt, courteous, professional answers, and a helpful attitude can greatly increase the percentage of donations, thereby maximizing your investment of time and effort setting up your program in the first place.

And following right along with this is step 3, in which the rep makes sure to get all the correct information for the state in which the donation originates. The Federal Government has rules regulating Non-Profit Organizations and donations, as well as Tax regulations, and not surprisingly each state has laws, regulations, and rules of their own. While the rep is answering the donor's initial questions they also take the opportunity to ask questions of their own, starting with qualifying questions and progressing to specific questions that make it possible to get the vehicle donation accomplished properly.

For example, if the person calling is not the donor and is making the call on behalf of the actual owner of the car, it's important to ascertain that the actual owner agrees with the donation and has the ownership documents available. If not, or if the donor isn't available to make the agreement, more work may be required to compile the documentation necessary to take possession of a vehicle without the owner's direct consent (perhaps through a power of attorney).

Car Donation Valuation

Another area of concern, covered in step 4, is providing the donor with accurate information about how their donation is going to be valued for IRS purposes, and what tax forms and documentation they will receive, when they will receive them, and what they should do with them. It's very common for donors to request an over-the-phone quote of the value of their vehicle, or assume that the Blue Book value will be used. No quote should be given over the phone, of course, and there's no guarantee that Blue Book value will be used. In fact, recent changes to vehicle donation laws make it likely that (unless the value is below a certain minimum) only the actual auction value can be deducted by the donor. And that value won't be known until well after the donor gives up the vehicle. Professional car donation processors know how to convey this information without losing the donation.

Scheduling the Pickup

Once the appropriate information and approvals have been gathered, the rep can schedule a local towing company to pick up the vehicle and transport it to a regional auction house. This may be the only physical contact the donor has with anyone involved in the process, so using reliable, reputable, professional towing companies is critical as well. You can imagine the reaction your donors would have if a scruffy-looking tow truck driver shows up and does not display a professional demeanor. Fortunately, vehicle donation processing companies such as Charitable Auto Resources maintain a network of approved towing companies and constantly monitor their performance to ensure a good perception is created when the vehicle is removed from the donor's location. These towing companies are also well-versed in the specifics of towing donated vehicles, thereby increasing the likelihood that the vehicle donation process will work smoothly.

Auctioning the Car for the Highest Value

Similar concerns exist in relation to the regional auction house that does the final sale. Everyone from the donor to the Charity has a stake in the outcome of the auction, and yet chances are good that no one (with the possible exception of the vehicle donation processing company management, if you choose a good company to represent your Charity) will actually be at the auction at the time of sale. It's very important to use an auction house with a good track record, and even then constant vigilance is required to ensure continued good performance.

Distributing the Proceeds from the Auction

And regarding collection and distribution of funds by the car donation processing company, laws vary from state to state, with California having some of the strictest laws (5 days from the time the company receives the funds to the time the funds are sent to the Charity). Reputable car donation processing companies make a point of meeting or beating the funds transfer requirements in their state.

Providing Documentation of the Sale

Once the sale has been concluded the donor will receive all the documentation required concerning the sale, and well-run vehicle donation companies also provide similar documentation to the Charity receiving the donation.

Running a Car Donation Program

At this point, you might be engaged in deciding whether to run your own vehicle donation processing system, or whether to hire a company such as Charitable Auto Resources to setup and run the program for you. The two main factors in making such a decision are:

  1. How much money will it cost me to have an outside company perform this function?
  2. Do I have the internal resources to conduct such a program properly?

The amount of money it will cost is really determined as the difference, on a per-car basis, between the amount of the fee you'd pay to an outside company, and the amount it would cost you to employ the people and pay the fees and costs to setup and maintain a system such as this on your own. Realistically, it is much less expensive to have a reputable outside company conduct your vehicle donation processing, for the same reasons that you probably would not set up your own telephone network, instead relying on the phone company to provide that service. Outside vehicle processing companies can spread the costs across their entire client base, and they are also experts at what they do.

The second question is often even more of a factor, since there are many critical issues associated with properly conducting a vehicle donation program. Unless you have an exceptionally large organization with senior managers who are not very busy, chances are good that out-sourcing vehicle donations processing is the best way to go. After all, which would you rather do, pay a small fee on each successful donation and be done with it, or run the risk of some small issue blowing up and absorbing unknown amounts of your senior manager's time?

And one final consideration. The very best vehicle donation processing companies, such as Charitable Auto Resources, maintain online systems that allow for all parties involved in a vehicle donation to login and review the status of a vehicle donation every step of the way. A fully transparent system such as this ensures that there are no doubts about what's happening, and helps you and your board rest assured that your vehicle donations are being handled properly.

The choice is yours, obviously. And you can use this article as a guide to setting up your own program, or just to satisfy yourself that the company you choose to do your processing is competent and has all the right attributes to make your program a success. Car donation programs are an excellent source of funding for many non-profits, with the added benefit that they help clean up the environment. We think that, after examining the facts, you'll find Charitable Auto Resources at the top of your list.