By Mary Dalrymple
The Associated Press

WASHINGTON - Charities fear that potential donors might conclude that it's not worth the hassle to donate used cars if Congress follows through with plans to clamp down on inflated tax deductions.

Lawmakers started looking into the subject a year ago, when government auditors discovered a wide gap between the proceeds reaped by charities and the value of donated cars claimed on tax returns. Charities sometimes make pennies on the dollar of a car's estimated value.

The gap occurs because charities typically sell donated cars at dealer auctions for wholesale prices. Donors calculate their tax deductions by estimating the car's retail value, sometimes ignoring its condition and mileage. Congress and the Treasury Department want to narrow the gap.

Plans to limit tax deductions for donated cars have advanced in the House and Senate.

In the House, lawmakers picked up a proposal in President Bush's budget that would require donors either to have the vehicle appraised or to use a valuation formula developed by the Treasury Department when figuring their tax deduction.

In the Senate, proposed rules would require charities to send a letter to donors reporting the sale price. Donations of cars worth less than $500 could be deducted without a letter.

Charities have concerns about parts of both proposals.

"Significant social dollars would be lost, and there's no way to replace those. People would be hurt," said Earl Copus Jr., president of Melwood in Upper Marlboro, Md., which offers job training, employment, living assistance and travel for the disabled.

Melwood's program has been so successful that the center plans to finish building a garage next year and hire 50 to 75 disabled clients to clean and repair donated cars.

Senate Finance Committee chairman Charles Grassley, whose committee asked government auditors to study the car donation program, contends that the proposed changes put little additional burden on taxpayers or charities.