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 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 provisions of KETRA through December 31, 2007.

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

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

Pending Tax Legislation

House and Senate Tax Extender Acts of 2008

The Federal Tax Code provides that wholesome food that is properly saved and donated by a C corporation to an approved charity is eligible for an enhanced tax deduction. Since KETRA this enhanced deduction has been available to all business entities. This deduction for non-C corporations which expired on December 31, 2007 is currently up for renewal in Congress.

The House passed the Renewable Energy and Job Creation Act of 2008, H.R. 6049, on May 15, 2008. This bill includes a one-year extension (until December 31, 2008) of the KETRA/PPA charitable deduction for contributions of food inventory by non-C corporations.

The Senate Finance Committee proposed the Alternative Minimum Tax and Extenders Tax Relief Act of 2008, S.2886, on April 17, 2008. This bill proposes a two-year extension (until December 31, 2009) of the KETRA/PPA charitable deduction for contributions of food inventory by non-C corporations.

Once the Senate Bill is passed the House and Senate bills will go to a Conference Committee to work out the differences. When the Conference Committee reaches a compromise it will prepare a written conference report which must be approved by both the House and the Senate before going to the President for signature.

There are many non-C corporations that currently donate surplus food inventory that will stop their donations without the enhanced tax deduction incentive. Passage of this legislation will help the food service industry offset costs and therefore encourage the contribution of food to the needy. It will also help to ensure the nation’s food banks and social service agencies can continue the fight against hunger.

Other Important Potential Tax Legislation

The Good Samaritan Hunger Relief Tax Incentive Extension Act of 2007 (S. 689) was introduced by Senator Lugar (R-IN) and Senator Blanche Lincoln (D-AR) on February 27, 2007. This legislation amends the Internal Revenue Code of 1986 to permanently extend the charitable deduction for contributions of food inventory.

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.  Bill also testified before the Subcommittee on Human Resources and the Subcommittee on Select Review of the Committee on Ways & Means on June 7, 2001. 

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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