The IRS and Treasury Department have issued guidance on charitable deductions for donated vehicles. Notice 2005-44 explains new rules adopted in the American Jobs Creation Act of 2004, which (1) generally limits the deduction to the actual sales prices of the vehicle when sold by the donee charity, and (2) requires donors to get a timely acknowledgment from the charity to claim the deduction.

Donors may claim a deduction of the vehicle's fair market value under the following circumstances:

• The charity makes a significant intervening use of the vehicle, such as using it to deliver meals on wheels.
• The charity makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.
• The charity donates or sells the vehicle to a needy individual at a significantly below-market price, if the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

The notice says the Service will be issuing new Form 1098-C, which may be used to provide the acknowledgment. Finally, it provides guidance on the new penalties imposed on donee organizations that provide a false or fraudulent acknowledgment of a vehicle donation, or fail to furnish the acknowledgment properly.

The IRS and Treasury request public comments on the guidance.  Comments must be submitted by September 1, 2005, in writing or electronically, as explained in section 9 of Notice 2005-44.