If the claimed value of a donated qualified vehicle exceeds $500, the amount of the deduction may be limited under § 170(f)(12), depending on the use of the qualified vehicle by the donee organization (as described in section 3.02 of this notice). In addition, under § 170(f)(12) the donor must obtain from the donee organization an acknowledgment that meets the requirements of section 3.03 of this notice, and include the acknowledgment with the tax return on which the deduction is claimed.

If the qualified vehicle is sold by the donee organization without a significant intervening use or material improvement by the donee organization, then (except as provided in section 3.02(3) of this notice) the deduction claimed by the donor may not exceed the gross proceeds received from the sale of the qualified vehicle. In no event may the deduction for a donated vehicle exceed the amount that is otherwise allowable under § 170(a) (fair market value). The donor must obtain from the donee organization an acknowledgment that meets the requirements of section 3.03 of this notice.

If the donee organization makes a significant intervening use of (within the meaning of section 7.01(1) of this notice) or material improvement to (within the meaning of section 7.01(2) of this notice) a qualified vehicle, the donor is not subject to the gross proceeds limitation in section 3.02(1) of this notice. However, the deduction claimed by the donor may not exceed the fair market value of the qualified vehicle. The donor must obtain from the donee organization an acknowledgment that meets the requirements of section 3.03 of this notice. In addition, the donor must substantiate the fair market value as described in section 5 of this notice.

Pursuant to § 170(f)(12)(F), the Internal Revenue Service and the Treasury Department hereby provide that the gross proceeds limitation in section 3.02(1) does not apply to a sale on or after January 1, 2005, of a qualified vehicle to a needy individual at a price significantly below fair market value, or a gratuitous transfer to a needy individual, in direct furtherance of a charitable purpose of the donee organization of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. See H.R. Conf. Rep. No. 755, 108^th Cong., 2d Sess. 750 (2004). Mere application of the proceeds from the sale of a qualified vehicle to a needy individual to any charitable purpose does not directly further a donee organization’s charitable purpose within the meaning of this section. The donor must obtain from the donee organization an acknowledgment that meets the requirements of section 3.03 of this notice. In addition, the donor must substantiate the fair market value as described in section 5 of this notice.

Under § 170(f)(12), a donor must obtain a contemporaneous written acknowledgment from the donee organization, and include the acknowledgment with the tax return on which the deduction is claimed. All acknowledgments under § 170(f)(12) must include the name and taxpayer identification number of the donor, the vehicle identification number, and the date of the contribution. Additional information is required depending on the use of the qualified vehicle by the donee organization, as described in sections 3.03(2) through 3.03(4) of this notice.

For a contribution of a qualified vehicle that is sold by the donee organization without any significant intervening use or material improvement by the donee organization in a sale that is not described in section 3.02(3) of this notice, the acknowledgment also must contain the date the qualified vehicle was sold, a certification that the qualified vehicle was sold in an arm’s length transaction between unrelated parties, a statement of the gross proceeds from the sale, and a statement that the deductible amount may not exceed the amount of the gross proceeds. The acknowledgment is considered contemporaneous if the donee organization furnishes the acknowledgment to the donor no later than 30 days after the date of the sale.

Example 1. On October 1, 2005, A contributes a qualified vehicle with a fair market value of $1,300 to O, an organization that is described in § 170(c). On December 1, 2005, the qualified vehicle is sold without any significant intervening use or material improvement in a sale not described in section 3.02(3) of this notice. Gross proceeds from the sale are $1,000. On or before December 31, 2005, O provides an acknowledgment to A containing A’s name and taxpayer identification number, the vehicle identification number, a statement that the date of the contribution was October 1, 2005, a statement that the date of the sale was December 1, 2005, a certification that the qualified vehicle was sold in an arm’s length transaction between unrelated parties, a statement that the gross proceeds of the sale are $1,000, and a statement that the amount of A’s deduction may not exceed the amount of the gross proceeds. The acknowledgment meets the requirements of § 170(f)(12).

For a contribution of a qualified vehicle for which the donee organization intends a significant intervening use or material improvement within the meaning of section 7.01 of this notice, the acknowledgment also must contain: 1) a certification and detailed description of a) the intended significant intervening use by the donee organization and the intended duration of the use, or b) the intended material improvement by the donee organization; and 2) a certification that the qualified vehicle will not be sold before completion of the use or improvement. The acknowledgment is considered contemporaneous if the donee organization furnishes the acknowledgment to the donor within 30 days of the date of the contribution.

Example 2. On October 1, 2005, B contributes a qualified vehicle to O, an organization that is described in § 170(c). O intends to use the vehicle in its charitable activities, and the intended use is a significant intervening use within the meaning of section 7.01(1) of this notice. On or before October 31, 2005, O provides an acknowledgment to B containing B’s name and taxpayer identification number, the vehicle identification number, a statement that the date of the contribution was October 1, 2005, a certification stating that O intends to make a significant intervening use of the qualified vehicle and stating the duration of this use, a detailed description of the significant intervening use, and a certification that the qualified vehicle will not be transferred in exchange for money, other property, or services before completion of the use by O. The acknowledgment meets the requirements of § 170(f)(12).

For a contribution of a qualified vehicle that meets the requirements of section 3.02(3) of this notice, the acknowledgment also must contain a certification that the donee organization will sell the qualified vehicle to a needy individual at a price significantly below fair market value (or, if applicable, that the donee organization gratuitously will transfer the qualified vehicle to a needy individual) and that the sale (or transfer) will be in direct furtherance of the donee organization’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. The acknowledgment is considered contemporaneous if the donee organization furnishes the acknowledgment to the donor no later than 30 days after the date of the contribution.

Example 3. On October 1, 2005, C contributes a qualified vehicle to O, an organization that is described in § 170(c). O’s charitable purposes include helping needy individuals who are unemployed develop new job skills, finding job placements for these individuals, and providing transportation for these individuals who need a means of transportation to jobs in areas not served by public transportation. O determines that, in direct furtherance of its charitable purpose, O will sell the qualified vehicle at a price significantly below fair market value to a trainee who needs a means of transportation to a new workplace. On or before October 31, 2005, O provides an acknowledgment to C containing C’s name and taxpayer identification number, the vehicle identification number, a statement that the date of the contribution was October 1, 2005, a certification that O will sell the qualified vehicle to a needy individual at a price significantly below fair market value, and a certification that the sale is in direct furtherance of O’s charitable purpose as described above. The acknowledgment meets the requirements of § 170(f)(12).