Contributions of Motor Vehicles, Boats, and Airplanes

Significant Use or Material Improvement

Significant Use:
The legislative history indicates that the Internal Revenue Service shall strictly construe the requirement of "significant use or material improvement." To meet the significant use test, an organization must actually use the vehicle to substantially further the organizations regularly conducted activities and the use must be significant. A donee will not be considered to significantly use a qualified vehicle if, under the facts and circumstances, the use is incidental or not intended at the time of the contribution. Whether a use is significant intervening use depends on its nature, extent, frequency and duration of use.

IRS Notice 2005-44 provides useful guidance for educational institutions. The notice states that significant intervening use includes "use of the qualified vehicle to provide transportation on regular basis for a significant period of time or significant use directly related to instruction in vehicle repair." "However, use by the donee organization does not include use of the qualified vehicle to provide training in general business skills, such as marketing and sales."

Material Improvement
With respect to the material improvement test, it was Congress's intent that a material improvement would include major repairs to a vehicle, or other improvements to the vehicle that improve the condition of the vehicle in a manner that significantly increases the vehicle's value. Cleaning, minor repairs, and routine maintenance are not considered a material improvement. Also, not considered material improvements are: 1) application of paint or other types of finishes (such as rustproofing or wax); 2) removal of dents and scratches; 3) cleaning or repair of upholstery; and 4) installation of theft deterrent devices.

Duration of use: The only official guidance provided is in an example where the charitable organization was deemed to have significant intervening use because it frequently used the donated vehicle "for about a year."

The term qualified vehicle means any (i) motor vehicle manufactured primarily for use on public streets, roads, and highways, (ii) boat, or (iii) airplane.