Enhanced Charitable Deductions for Businesses, Counting on Charity, An accounting professor’s view of the nonprofit world. WEDNESDAY, JANUARY 30, 2013
Anil Arya and Brian Mittendorf, The Economic Consequences of Enhanced Charitable Tax Deductions, March 1, 2013. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2208095
PRESENT LAW AND BACKGROUND RELATING TO THE FEDERAL TAX TREATMENT OF CHARITABLE CONTRIBUTIONS, Scheduled for a Public Hearing Before the SENATE COMMITTEE ON FINANCE on October 18, 2011, Prepared by the Staff of the JOINT COMMITTEE ON TAXATION October 14, 2011 JCX-55-11, https://www.jct.gov/publications.html?func=startdown&id=4506
Gene Takagi , IRS Releases Notice on Charitable Contributions of Inventory. October 03, 2008
Stephanie Strom, Closer Look at Deductions for Donations to Charity, New York Times, December 12, 2003
Manon Ress, Tax Deductions for Pharmaceutical Drug Donations, CPTech, June 29, 2000
Statutes, Forms, IRS guidance
26 USC § 170 – Charitable, etc., contributions and gifts
IRS form 8283, Noncash Charitable Contributions
Ronald Fowler and Amy Henchey, E. IN-KIND CONTRIBUTIONS, IRS. 1994 EO CPE Text.
3. The IRC 170(e)(3) Exception
A. General Requirements
The basis standard for deduction of contributions of inventory and similar property came under heavy fire even at the outset, according to 1976 public hearings on general tax reform before the House Committee on Ways and Means. Charitable organizations complained that donors of inventory discontinued contributions rather than deal with the restrictions. A substantial amount of evidence was presented to show that charitable organizations most affected by IRC 170(e) were those involved in distributing food, medicine, clothing, and other basic necessities.
As a result, the Tax Reform Act of 1976 added IRC 170(e)(3), effective for contributions made after October 4, 1976. In March 1980, proposed regulations were published; final regulations were adopted incorporating certain changes effective January 29, 1982.
IRC 170(e)(3) provides an exception to the basis standard and gives prospective donors business reasons to consider making charitable donations of inventory. If a corporation, other than an S corporation, contributes section 1221(1) or (2) property, it may deduct an amount exceeding the property’s basis (determined in accordance with Reg. 1.170A-4A(c)(2)).
To be eligible to receive deductions qualifying under IRC 170(e)(3), the donee must be an IRC 501(c)(3) organization and a public charity or a private operating foundation. Of course, other requirements for deductibility under IRC 170(c)(2) must be met. Thus, the contribution must be to or for the use of a domestic organization. See Rev. Rul. 63-252, 1963-2 C.B. 101; and Rev. Rul. 66-79, 1966-1 C.B. 48, regarding the use of “conduit” organizations for foreign charities.
Quotes
Merck Public Policy Statement: Charitable Product Donations, January 2010.
. . .
Although not the primary driver for Merck, the Company supports the continuation of the enhanced tax deduction granted by the United States Internal Revenue Service (IRS) as an appropriate incentive for qualified charitable product donations. The Company also supports the elimination of import tariffs and taxes on charitable product donations.To facilitate charitable donations, Merck partners primarily with a limited number of qualified non-governmental organizations (NGOs) or private voluntary organizations (PVOs). Each of these organizations has a long-standing relationship with the Company, demonstrates integrity of purpose, provides assurance that Merck products will be securely warehoused and will not be diverted, mishandled or misappropriated, and has well-established programs for the ill and needy in developing countries. These qualifications provide the Company with the controls necessary for the proper distribution, handling and administration of donated Merck products.