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Questions in 'Compliance' 
What are Section 6720 Penalties?
How should I handle Donor's (Form 1098-C) who have not provided a taxpayer identification number?
Answers
What are Section 6720 Penalties?
Section 6720 imposes penalties on any donee organization that is required under section 170(f)(12) to furnish an acknowledgment to a donor if the donee organization knowingly:

  • Furnishes a false or fraudulent acknowledgment or
  • Fails to furnish an acknowledgment in the manner, at the time, and showing the information required by section 170(f)(12).

    An acknowledgment containing a certification described in box 5a or 5b of Form 1098-C will be presumed to be false or fraudulent if the qualified vehicle is sold to a buyer other than a needy individual (as explained in the instructions for box 5b) without a significant intervening use or material improvement (as explained in the instructions for box 5a) within 6 months of the date of the contribution. If a charity sells a donated vehicle at auction, the IRS will not accept as substantiation an acknowledgment from the charity stating the vehicle is to be transferred to a needy individual for significantly below fair market value. Vehicles sold at auction are not sold at prices significantly below fair market value, and the IRS will not treat vehicles sold at auction as qualifying for this exception.

    The penalty for an acknowledgment relating to a qualified vehicle for which box 4a must be checked is the larger of:

  • The gross proceeds from the sale, or
  • The sales price stated in the acknowledgment multiplied by 39.6%.

    The penalty for an acknowledgment relating to a qualified vehicle for which box 5a or 5b must be checked is the larger of:

  • $5,000, or
  • The claimed value of the vehicle multiplied by 39.6%.
  • How should I handle Donor's (Form 1098-C) who have not provided a taxpayer identification number?
    Taxpayer Identification Numbers (TIN) are used to associate and verify amounts you report to the IRS with corresponding amounts on tax returns. Therefore, it is important that you furnish correct names, social security numbers (SSNs), individual taxpayer identification numbers (ITINs), employer identification numbers (EINs), or adoption taxpayer identification numbers (ATINs) for recipients on the forms sent to the IRS.

    Request a TIN from the Donor. If the donor is a U.S. person (including a U.S. resident alien), the IRS suggests that you request the donor complete Form W-9, Request for Taxpayer Identification Number and Certification. See the Instructions for the Requester of Form W-9 for more information on how to request a TIN.

    If the donor does not provide a TIN, you must check box 7 of Form 1098-C because the acknowledgment will not meet the requirements of section 170(f)(12) and the donor will not be allowed to claim a deduction of more than $500 for the qualified vehicle.

    If you check box 7, do not file Copy A with the IRS and do not furnish Copy B to the donor.
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