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§ 9.25 USED VEHICLESTen issues of law are caught up in this matter of suspect vehicle donationplans.1. Valuation. One of the principal issues of concern to the IRS is valuation ofcontributed vehicles for purposes of determining the charitable deduction.Although the law does not mandate a single procedure, one way tovalue a donated vehicle is by reference to an industry pricing guide. Inany event, the value will vary depending on factors such as the conditionof the vehicle and the geographic area in which it is disposed. In determiningthe deduction, the amount is confined to the actual fair marketvalue of the vehicle. 5822. Substantiation. This matter of valuation is not only the concern of thedonor. If the contributed vehicle has a value of $250 or more, the donee charitableorganization must—if the deduction is to be allowed—substantiatethe gift. This includes provision of a written statement describing theproperty contributed. 5833. Appraisal. If the value of the contributed vehicle is in excess of $5,000, thedonor is obligated to obtain an independent appraisal of the vehicle. 5844. Penalties. Both parties should proceed cautiously in these regards, inasmuchas there are penalties for aiding and abetting understatements oftax liability, for preparation of false tax returns, and for promoting abusivetax shelters. 585 Indeed, the IRS imposed these penalties in the contextof a charitable organization’s used vehicle contribution program whenthe organization had a practice of providing donors with the full fair marketvalue of contributed vehicles in each instance, even when some of thevehicles were in poor condition and could only be sold for salvage orscrap. 5865. Unrelated business considerations. When vehicles are contributed to a charitableorganization and the organization disposes of them, the charity maybe perceived as being in the business of selling used vehicles. Nonetheless,this activity is not taxable as an unrelated business, because of the donatedgoods exception. 587 The IRS has ruled favorably on this point. 588 In someinstances, payments to a charitable organization in the context of theseprograms may be characterized as tax-excludable royalties. 589 The IRSmay conclude, however, that the payments fail to qualify as excludableroyalties, on the ground that the charity is providing more than insubstantialservices in conjunction with the transactions, such as by providing therequisite substantiation documents and acknowledging appraisals.582 See § 10.1(c).583 See § 21.1(b).584 See § 21.2.585 See § 10.10.586 Tech. Adv. Mem. 200243057.587 See § 3.5(f), text accompanied by note 484.588 See, e.g., Priv. Ltr. Rul. 200230005.589 See § 3.5(g). 347