Thrift stores fear new federal tax proposal

Guess what? Some lawmakers say second-hand clothes bagged and dragged to the thrift store represent a $1.9 billion tax fraud.

So Congress is targeting the donations of those marvelous polyester shirts with the wide collars and missing buttons. They’re even questioning the donations of clothing irons, romance novels, plastic purses, dishes, wigs, well-worn shoes and chairs fit for an episode of “All in the Family.”

Every year, Americans clean out their closets and get rid of clothes and goods they don’t use. Many take a receipt from thrift stores and claim the donations on tax returns, a practice that the Internal Revenue Service calls a “top problem.”

So, in this tight-budget year, lawmakers are seeking savings and such charitable donations have earned their attention.

“Sure there are some problems,” acknowledged Mathew Meeusen, executive director of the St. Vincent de Paul Society in Spokane. “What they’re doing, though, is using tax-cheaters as an excuse to cut money that helps programs like ours … ones that help poor people.”

Thrift stores worry that a proposal in front of the Senate Finance Committee will reduce donations and cut thrift store operations.

And that’s serious business in Spokane, a city with plenty of poor people and second-hand stores.

On Wednesday, a half-dozen executives from charities such as the Union Gospel Mission, Salvation Army and St. Vincent held a mini-summit to organize a letter-writing and media campaign.

The proposal is this: charitable donations of clothes and household goods would be capped at $500 per year for tax purposes. Right now, the ceiling is $5,000.

Despite the IRS claims of tax fraud, there are some safeguards in place.

For example, if a taxpayer now claims more than $500 in such charitable donations, they must file a special, non-cash charitable contribution form with the IRS. It amounts to a red flag that increases the risk that the IRS will conduct an audit.

By lowering the cap, thrift stores worry that the biggest donors will lose incentive to give.

Thrift stores offer receipts to donors. The signature on the receipt from the store is nothing more than an acknowledgement of a donation.

The valuation of items is up to the individual taxpayer, and this is where some government officials say an atmosphere of fraud is created.

“The problems of some Americans taking at best what would be described as a profoundly optimistic view of the value of their old clothes is well-known,” wrote Sen. Charles Grassley, R-Iowa, in a letter explaining the proposal to the president of Volunteers of America.

Thrift stores, however, say the attempt to crack down on income tax fraud will hurt efforts to encourage people to help their less-fortunate neighbors.

Lance Shew, of the Union Gospel Mission and Classy Rack, said he fears it will mirror what happened when Congress changed how donations of automobiles are handled.

“It has just wiped things out for some groups,” he said.

St. Vincent de Paul used to receive an average of four cars per month. The owners could write off the book value of the car.

Today, the donor must wait for the charity to actually sell the car and then claim what the car fetched. While it sounds fair, the effect has been a severe drop-off in cars donated, Meeusen noted. St. Vincent de Paul has received just two cars during the first four months of the year.

Because the charities put little emphasis on profit, they are more apt to let a car sell for much less than book value.

Meeusen said he hopes a similar national effort to sink the charitable donation proposal will resonate with Congress. “In the end, we need to make sure people know this sort of thing has consequences,” he said.