LegalSecy:What does that mean? Does this mean that the
charity to which we donated the vehicle is
somehow playing games with the IRS? I believe
the value of the vehicle is > $500 (not
that I really care - we wanted to donate it
to the charity involved anyway). Are they
saying that they are only valuing the vehicle
at $500 in order to get around having to
report it to the IRS? That would concern me.
I can't say for sure what it means without knowing more about the particular charity and the car that was donated. I did a quick blue book search for my zip code on a 1995 Chevy Lumina passenger minivan, 150,000 miles on it, with standard equipment and in good condition and came up with a value of about $675 in a private party sale (which is the kind of sale that is the best indicator of fair market value, generally, as that is the kind of sale you'd have done to sell it). The values in your area may be different, and of course your vehicle may have been better or worse than what I did the search for, so the value of you donation may be different. But I think it may be fair to say it may not have been worth a whole lot more than $500.
I doubt the charity is trying to cheat the IRS here. First, understand a few rules. You are generally limited in your deductions to charity of a vehicle to the lower of (1) the fair market value at the time of donation or (2) what the charity gets for the car when it sells it. When the charity sells the vehicle, it must shortly thereafter notify you of what the vehicle sold for. In addition, for donations of vechicles over $500, the charity must provide you with an acknowledgement of the donation on Form 1098-C (or similar statement) and file the Form 1098-C with the IRS. If the value of the vehicle is less than $500 or if you did not provide the charity with your SSN, the charity will provide you with an acknowledgement that the value was no more than $500 and will not file a Form 1098-C with the IRS. That bolded part is important. If the charity does not have your SSN, then if the car had a fair market value of more than $500 and sold for more than $500, you are nevertheless limited to a deduction of $500. So, did you provide the charity with your SSN? If not, then that would appear to answer your question about the first statement by the charity in your post--the value limitation of $500.
Note that the charity has no incentive to undervalue the cars that are donated. They are tax exempt, so the charity pays no income tax on the money it gets from selling the cars. So, it's not like a private business that might want to avoid IRS reporting to hide taxable income. Rather, the incentive is the opposite—charities know that tax deductions are a major incentive for these gifts, and donors therefore will tend to go to charities that will give them higher values on their acknowledgements, all other things being equal. (A charity that delibrately overstates values will be subject to sanctions.) Thus, if Charity A provides donors with acknowledgements reflecting the true fair market value of over $500 and Charity B understates them at less than $500 to avoid reporting, which one will do better in the competition for donations? Charity A, of course. While the reporting is a bit of a paperwork hassle, it's worth it to charities to keep the donations flowing.
As for the second paragraph that concerned you, statements like that are common in charity acknowledgements for all gifts they get, no matter the value of the gift. The purpose is not to indicate that it is trying to avoid reporting. Rather, it is warning donors that that information may be reported to the IRS and thus the donor had better take care not to overstate the value of their deductions on their returns.
For more information, see IRS Publication 526 and the Form 1098-C instructions.
