Tax Law Encourages Donations of Food to Food Banks
On September 23, 2005, Congress enacted the “Katrina Emergency Tax Relief Act of 2005” (P.L. 109-73; 119 Stat. 2016). Section 305 of the Act provides a new incentive for donating wholesome food to hunger relief agencies to assist with disaster relief and recovery efforts and to help encourage donations of food in all other areas of the country where the problem of hunger persists.
Corporate Donations
The Bill Emerson Good Samaritan Food Donation Act
On October 1, 1996, President Clinton signed the Bill Emerson Good Samaritan Food Donation Act to encourage the donation of food and grocery products to non-profit organizations for distribution to needy individuals. This law makes it easier to donate. Here's how:
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It protects donors from liability when donating to a non-profit organization.
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It protects donors from civil and criminal liability should the product donated in good faith later cause harm to the needy recipient.
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It standardizes donor liability exposure. Donors and their legal counsel no longer have to investigate liability laws in 50 states.
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It sets a liability floor of "gross negligence" or intentional misconduct for persons who donate grocery products. (See full text for further deinition)
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Congress recognized that the provision of food close to recommended date of sale is, in and of itself, not grounds for finding gross negligence. For example, cereal can be donated if it is marked close to code date for retail sale.
The bill was named for Rep. Bill Emerson (R-Missouri) who fought for the proposal but died of cancer before it was passed.
Tax Benefits for Corporate Donations
A corporation (other than an S-Corporation) that contributes inventory, property held primarily for sale to customers in the ordinary course of its trade or business, may deduct its basis for the property plus one-half of the property’s unrealized appreciation. However, the claimed deduction may not exceed twice the basis of the property. In addition, no deduction is allowed for any part of the appreciation that would be ordinary income resulting from recapture. In the case of inventory which is depreciated (i.e. the FMV less than the basis) the charitable contribution is limited to the property’s fair market value. Basis allocation with respect to spit contribution must be allocated thought the use of a “reasonable” method.
A corporation’s charitable deduction for a tax year can not exceed 10% of its taxable income for the year. Taxable income for this purpose is computed without deductions for charitable contributions or dividends received, or net operating loss or capital loss carrybacks to the year.
Examples:
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Inventory costing $20 to produce is donated to a charitable organization. The inventory has a FMV of $40 at the time it is donated. The corporation would be entitled to a $30 (20+(40 x 50%)) charitable contribution.
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Inventory costing $20 to produce is donated to a charitable organization.The inventory has a FMV of $50 at the time it is donated. The corporation would be limited to $40 (20+(50 x 50%) = 45) charitable contributions because deduction can not exceed twice the basis of the property.
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Inventory costing $20 to produce is donated to a charitable organization. The inventory has a FMV of $10 at the time it is donated. The corporation would be limited to a $10 charitable deduction because FMV less than the basis.
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Inventory costing $20 to produce is sold and donated to a charitable organization for $10. The inventory has a FMV of $40 at the time it is sold/donated. The corporation would be entitled to a $15 charitable deduction.
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Cost |
FMV |
Selling Price |
Appreciation |
Total Amount |
$20 |
$40 |
$10 |
$20 |
*Sale Allocation |
$10 |
$20 |
$10 |
$10 |
#Gift Allocation |
$10 |
$20 |
$0 |
$10 |
Allocation based on 50%
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Help our Foodbanks continue to provide food to low-income
hungry Ohioans and their families by making a donation on-line.
All donations are tax-deductible. For every $1 donated OASHF provides 5 meals.
To make a donation on-line, please click on the Network for Good icon above.
If you want to make a donation, but prefer to make it off-line, please contact Bob Wicks, or send your check or money order payable to:
Ohio Association of Second
Harvest Foodbanks
51 North High Street, Suite 761
Columbus, Ohio 43215
Thank you for all your help to end hunger in Ohio.
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