United States Tax Benefits

The following information is presented for general information only. Consult with your Attorney or Tax Consultant to determine its application to your specific organization and situation.

Current Tax Law

U.S. Congress enacted Section 170 of the Internal Revenue Code in 1976 to encourage donations by allowing C corporations to earn an enhanced tax deduction for donating selected surplus property, including food.

The Code provides that wholesome food that is properly saved, donated to an approved agency and properly receipted is eligible for an enhanced tax deduction. This enhanced deduction is equal to ½ of the donated food’s appreciated value, with the limitation that the total deduction cannot exceed twice the donated food’s basis cost. This incremental tax deduction is calculated from the donated food’s fair market value and basis food and labor cost. The IRS may challenge the value of donated food.

Fair market value (FMV) continues to be evaluated by the IRS on a company by company basis. Congress’ intention to encourage this type of donation would be enhanced by codifying an important Tax Court ruling regarding FMV determinations.

See an explanation of how this enhanced tax deduction applies to donation of wholesome food.

Food Donation Tax Law for Non C Corporations

While this tax law is permanent for C corporations, since 2005 the law for non-C corporations is required to be extended every two years.

The Katrina Emergency Tax Relief Act (KETRA) (H.R. 3768) passed by Congress on September 22, 2005 extended this enhanced tax deduction of Section 170 to all business entities. This extension applies to all qualifying donations made between August 28 and December 31, 2005. (Additional explanation from the Joint Committee on Taxation (JCT))

The Pension Protection Act of 2006 (PPA) (H.R. 4) signed by President Bush on August 17, 2006 extended the Enhanced Charitable Deduction for Contributions of Food Inventory through December 31, 2007.

The Emergency Economic Stabilization Act of 2008 (H.R. 1424) signed by President Bush on October 3, 2008 extended the Enhanced Charitable Deduction for Contributions of Food Inventory through December 31, 2009.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R.4853, Public Law 111-312) signed by President Obama on December 17, 2010 extended the Enhanced Charitable Deduction for Contributions of Food Inventory through December 31, 2011.

The Taxpayer Relief Act of 2012 (HR 8) (Public Law 112-240) signed by President Obama on January 2, 2013, provided a two-year extension of the Enhanced Charitable Deduction for Contributions of Food Inventory to December 31, 2013.

The law for non-C corps expired on December 31, 2013. Historically the U.S. Congress has retroactively extended the benefit after expiration, so one would expect the benefit to be extended in 2014.

Legislation to make the enhanced tax deduction for non-C corps permanent was introduced on July 30, 2013 in the U.S. Senate ( S.1395) by Patrick Leahy (D-VT), Robert Casey (D-PA), Thad Cochran (R-MS) and Jerry Moran (R-KS); and August 1, 2013 in the U.S. House of Representatives ( HR 2945) by Sander Levin (D-MI) and Jim Gerlach (R-PA). FDC can provide additional details about this legislation.

Technical Tax Correction for S Corporations

Prior to December of 2007, S corporations with limited shareholder basis faced a dilemma regarding their ability to take the enhanced tax deduction for donating food inventory. FDC submitted a technical correction to the House Committee on Ways and Means in 2007 which was integrated into The Tax Technical Corrections Act of 2007 (HR 4839 and Public Law 110-172).  This made a technical correction to the provision relating to contributions of appreciated property by an S corporation.

The technical correction provides that the present-law basis limitation on the deduction of S corporation items does not apply to a contribution of appreciated property to the extent the shareholder’s pro rata share of the contribution exceeds the shareholder’s pro rata share of the adjusted basis of the property. This means that S corporation shareholders can take the enhanced deduction regardless of their basis in the corporation.

Wholesome Surplus Food Feeds People

Food Donation Connection has been actively involved with tax law issues since 1992 and is currently participating in efforts to resolve the corporate entity and valuations issues. Bill Reighard testified before the Oversight Subcommittee of the Committee On Ways & Means on March 21, 2000. 

Food Donation Connection administers the Harvest Program to coordinate the distribution of excess food from restaurants and other food service organizations to qualified local non-profit organizations that help people in need.

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