With a gracious spirit, let’s say that Section 317 of Senate Tax Relief Act of 2005 was penned with the intent of fostering honest accountability in the charity world. And, furthermore, let’s graciously allow that the legislation was designed to send the message that the Internal Revenue Service is vigilantly watching over the donation of tax-deductible clothing and household goods.
A recent article in the Washington Post justifiably underscored the importance of providing goods to charities that actually have value. Too much of what is given to charities today winds up in the local dump.
But Congress was not thinking clearly when it included a “Limitation of Deduction for Charitable Contributions of Clothing and Household Items” in Section 317. This measure requires the Secretary of the Treasury to annually create a list that places ‘market values’ on all household goods or items that would potentially be donated to a charitable organization. For a contribution in excess of $250, the donor would be required to secure a receipt from the charity that provided an itemized list “of number of items contributed, an indication of the condition of each item, a description of the type of item contributed, and a copy of the Secretary’s valuation list or an instruction on how to obtain such list.”
If the donated item is not in a “good used condition or better,” the charity would then need to value the contribution at 20 percent of the market value as deemed by the Secretary’s list. Or no value at all if the charity said it was worthless to the organization.
The Coalition to Preserve Religious Freedom argues that Section 317 generates serious operations and accounting burdens for rescue missions and small nonprofit organizations. That is a polite response.
For more than two years now, the IRS has been telling Congress — and the Senate Finance Committee in particular — that it doesn’t have the resources to get its charity oversight work done. Now the IRS wants to get into the clothing and household goods valuation business?
Maybe the Beltway crowd has missed the private sector solution to this issue — one that you can simply order online. The 2005 It’s Deductible Workbook is now significantly discounted, but even last week, you could get a copy online for $14.95. Called the “Blue Book for Donated Items,” this private sector product is fully compliant with IRS code.
So, first of all, we should all agree that the IRS doesn’t need to “reinvent the in-kind donation pricing wheel.”
What’s more, we need to ask why the responsibility for finding the value (whatever the source) of donated in-kind goods is put on the receiver of the goods instead of the giver.
Section 317 has the potential to create a classic “unintended consequences” scenario. It may result in the government spending millions of tax dollars to generate information that already exists in the private sector, which by the way, is based on market values. Then the agency that receives the donation has to go through the red tape of providing an itemized list, value, and condition report for each item. That should go a long way toward further burdening and possibly eliminating scores of smaller charities, thrift shops, and rescue missions — groups that are already stretched by the basic tasks of receiving, sorting, and selling donated goods.
Is this all by design? Officials in Washington have been quoted as saying that there are too many small charities in this country. That means, to their way of thinking, that these charities are too difficult to regulate. If the true intent of charity regulation reform is greater accountability for all, let’s find a better way. Section 317 is neither the effective nor efficient way to accomplish this objective.