A tough, two-part deduction test issued in new IRS regulations for charitable contributions requires taxpayers to understand how to determine the value of items they donate to charity, cautions the National Association of Enrolled Agents.

Enrolled Agents are licensed by the federal government to prepare taxes and to represent taxpayers before the Internal Revenue Service.

A lot of places are advertising that someone can donate a car and take a big deduction, notes Enrolled Agent Carol Thompson. "One person thought she could value a 1977 vehicle at $7,000. Not only didn't it run, but the Blue Book value on it was just $345." Running or not, the car's Blue Book value is the best estimate of worth.

The new IRS regulations offer guidance to charitable organizations and their donors on the deduction, substantiation and disclosure rules for charitable contributions.

For example, no deduction is allowed for any payment to a charity unless the amount of payment exceeds the value of the goods and services expected in return.

NAEA offers these suggestions to taxpayers for deducting their charitable contributions:

• Obtain written acknowledgments for gifts of $250 or more. Such documentation must include a description of the property and a good faith estimate of the value of any goods or services provided to the donor in exchange for the donation. (Charities receiving gifts over $75 must provide disclosure statements indicating the value of goods and services provided by taxpayers, and inform them that the deduction for the gift is limited to the excess of the amount contributed over that value.)
• For contributions to Goodwill, the Salvation Army and similar organizations, the taxpayer's receipt should not list just "two bags of clothing". . . but, rather, "four shirts, one skirt, six pairs of pants and two pairs of sneakers."
• Locate prices for household goods you're donating to charity from local newspaper classified ads and use these prices to determine comparable values for such items.
• For appreciated assets such as shares of stock donated to a charity -- for which you get to deduct their full market value and never have to pay any capital gains on them -- contributions must have been made by December 31, 1997 in order to claim deductions on your 1997 taxes.
• By naming a charity as the beneficiary of an Individual Retirement Account, people with large estates -- who don't need to pass on their IRAs to a surviving spouse or other family member -- will have to take bigger distributions during their lifetimes.
• To determine if your favorite charity is eligible to receive tax-deductible contributions, write for a copy of IRS Publication 78 -- a cumulative list of all qualified organizations. Also, ask the organization to send you a copy of the tax-exempt letter provided by the IRS approving its tax-exempt status. Taxpayers can also use the Internet for a listing of IRS-approved charities.

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