Individuals often first learn about vehicle donation programs through advertisements. Vehicle donation advertisements can be found on billboards, truck banners, and television, as well as in newsletters and even on small paper bags. Some of the most common mediums for vehicle donation advertisements include the radio, newspapers, and the Internet. Based on a sample of advertisements we reviewed, we found that advertisements for vehicle donations often identified that individuals could claim tax deductions for the donations, the donations served charitable purposes, and the donors’ vehicles would be towed free of charge. Figure 1 identifies the most common claims made in the newspaper, radio, and Internet advertisements we reviewed. IRS has expressed concern about some vehicle donation advertisements. According to an official from IRS’s Tax Exempt Division, tax deduction claims are potentially deceptive when they do not specify that taxpayers must itemize their deductions to claim a vehicle donation, since many taxpayers do not itemize. Of the 147 advertisements we reviewed, 117 identified that taxpayers could claim a tax deduction, but only 7 advertisements specified that donors must itemize in order to claim a deduction. IRS also expressed concern when advertisements claim donors can value their vehicles at full, or maximum, market value when claiming a tax deduction. IRS does not define full or maximum value, but believes these claims may be misleading since vehicles are required to be valued at fair market value. IRS stated that these advertisements may be particularly misleading when they also claim that vehicles will be accepted whether they are running or not. Fair market value equals what a vehicle would sell for on the market, and takes into account a vehicle’s condition and mileage, among other factors. Of the 117 advertisements we reviewed that mention tax deductions, 38 specified that donors could claim fair market value on their tax returns when donating their vehicles; while 8 identified that a donor could claim full or maximum market value. Other advertisements referred potential donors to the IRS Web site, an accountant, used car guides such as the Kelley Blue Book, or other sources for guidance on claiming a tax deduction. After deciding to donate a vehicle to charity, a donor will generally encounter one of two types of vehicle donation programs: those operated by charities (in-house) and those operated by a for-profit or not-for profit fund-raiser (fund-raiser). Donors may not know whether they are donating vehicles directly to charities or through fund-raisers. Figure 2 identifies the vehicle donation process for both in-house and fund-raiser vehicle donation programs. For in-house programs, charities, typically larger ones, advertise for vehicle donations, and respond to donor’s initial call inquiring about a donation. After the charity determines that it will accept the vehicle, it arranges to have the vehicle picked up, often towed, and delivered to wherever it will be stored until it is liquidated. The charity provides the donor with a receipt when the vehicle is picked up, or at a later time to document the donation for tax purposes. At the time the vehicle is picked up, the charity obtains the title of the vehicle from the donor, and some charities may provide donors with state-required forms (e.g., release of liability) or references for establishing the tax deductible value of their donated vehicles (e.g., Kelley Blue Book or IRS guidance). Charities we spoke with stated that it is up to the donor to establish the vehicle’s value. Once the donated vehicles are collected, they are generally sold at auto auctions or salvaged for parts, but may also be sold to auto dealers or to the general public. Charities with in- house programs keep 100 percent of the net proceeds after deducting costs associated with processing the vehicles. For fund-raiser programs, fund-raisers generally perform some or all of the tasks associated with advertising, vehicle pick up, and vehicle disposal. After deducting expenses, fund-raisers keep a portion of the net proceeds from the vehicle sale or salvage, providing the remainder of the proceeds to the specified charity. A charity working with a fund-raiser may have no oversight of the process, leaving the operation of the program, and distribution of proceeds, up to the fund-raiser. The relationship between charities and fund-raisers varies, depending on the agreements they have established. Some commercial fund-raisers may handle vehicle donation programs for many charities. For example, one national fund-raiser has contracts with about 140 charities, and another works with about 200 charities. Charities may also contract with multiple fund-raisers. Fund-raisers often support smaller charities that would not otherwise be able to participate in vehicle donation programs. For example, at one California charity, a staff person spent half her time working with two vehicle donation fund-raisers, which together generated about $110,000 for the first six months of the current year (approximately 8 - 10 percent of its annual budget). In addition to the in-house and fund-raiser programs described above, we identified some variations in how vehicle donation programs operate. For example, see the following: Some charities refurbish donated vehicles for their own program services or clients, rather than for sale or salvage. One state consortium of 14 charities jointly runs a vehicle donation program in conjunction with a wrecking yard. The charities share in oversight of the operations, such as inspecting donated vehicles and monitoring vehicle donation reports. Donors can select one charity to receive the proceeds, or proceeds are split among members of the consortium equally if no charity is designated. One large charity runs a national vehicle donation program and serves regional offices as a fund-raiser would, charging its regions vehicle processing costs. Some of the charity’s affiliates choose other fund- raisers and do not participate in the national program. Another large charity runs a national program and serves charity affiliates but also has a nonprofit vehicle donation program for other smaller charities. The total proceeds a charity receives from a vehicle donation may be less than what a donor expects. We identified two factors that contribute to this difference. First, charities and fund-raisers often sell vehicles at auto auctions for wholesale or liquidation prices or to salvage yards for parts, rather than obtaining the amount they would receive if vehicles were sold to private parties. Second, vehicle processing and fund-raising costs are subtracted from vehicle revenue, further lowering proceeds. According to a 2001 survey of charitable donors commissioned by the Wise Giving Alliance, donors expect at least 70 to 80 percent of a charity’s funds to be used for charitable purposes rather than fund-raising or administrative costs. Actual charity receipts reported to state officials for charity fund-raising are less. For example, in New York telemarketing fund-raisers (not specifically vehicle donations) returned 32 percent of funds raised for charities in 2000. Although donors are often motivated by serving a charitable cause when donating their vehicle, the results of donor surveys identified that individuals are also motivated by the ability to claim a tax deduction and to dispose of an unwanted vehicle. Figure 3 provides an example of the amount a charity received from an actual vehicle donation. In this case, a 1983 truck was donated in 2001 to a charity whose vehicle donation program is operated through a fund-raiser. The gross sale price for the truck (sold at an auction) was $375. After deducting fund-raiser and advertising expenses, net proceeds totaled $63.00. This amount was divided evenly between the fund-raiser and charity, leaving the charity with $31.50 from the vehicle donation. The donor claimed a deduction of $2,400 on his or her tax return, based on the fair market value of the vehicle as identified in a used car guidebook. Charities operating in-house vehicle donation programs incur costs associated with processing vehicles for sale or salvage, but do not incur additional fees generally associated with fund-raiser programs. Processing costs cannot be compared among in-house programs because charities may record their costs differently. One of the few in-house charities we spoke with reported that it earned a net average of 42 to 44 percent of the sales price of donated vehicles. Another charity operating a national program for local affiliates reported a range of 13 to 32 percent net proceeds for programs operating for over 2 years, and a deficit to slightly in excess of breakeven for newer programs. Proceeds received by charities participating in vehicle donation programs run by fund-raisers also varied, in part due to the different processing costs deducted by fund-raisers, as well as different agreements between charities and fund-raisers for splitting net proceeds. Some charities receive a percentage of the net proceeds, after the fund-raisers costs are deducted. Other charities receive the net proceeds remaining after the fund-raiser deducts a flat fee for expenses. California is the only state that systematically captures information on the percentage of proceeds received by charities through vehicle donation programs. However, California only captures information related to programs run by fund-raisers, and cannot separately identify the number of charities that operate in-house programs. According to a report from the California State Attorney General’s Office, less than 1 percent of registered charities in California have vehicle donation programs that are managed by commercial fund-raisers. In 2000, these fund-raisers generated approximately $36.8 million in sales revenue, with about $11.3 million (31 percent on average) being returned to the charities. As shown in figure 4, California charities received proceeds from fund-raiser programs ranging from less than 20 percent to over 80 percent of the net proceeds from vehicles, but most were in the 40 – 59 percent range. Issues relating to charity proceeds from fund-raising reached the Supreme Court on March 3, 2003, in arguments related to “Ryan v. Telemarketing Associates”. The Attorney General of Illinois is appealing a decision of the Illinois Supreme Court to dismiss fraud charges against Telemarketing Associates. At issue were solicitations implying that cash donations would go to a charity to buy food baskets and blankets for needy veterans, while only 15 percent of the funds raised actually went to the charity.