New 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 food to hunger relief agencies for the purposes of assisting
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.
What Does the New Law Do?
Section 305 of the Katrina Emergency Tax Relief
Act encourages the donation of food by extending the "special
rule deduction" (§ 170(e)(3) of the Internal Revenue
Code) advantage to all business taxpayers. Now, all
businesses -- C Corporations, farmers, ranchers, small businesses,
partnerships, franchises and others -- who make inventory
donations of wholesome food to a hunger relief charity receive
an enhanced deduction.
How Does the Enhanced Deduction
Work?
Donations of wholesome food inventory made
to a charity 501(c)(3) organization, such as a Food Bank, by a
business taxpayer between August 28, 2005 and December 31, 2005
are allowed to take an enhanced deduction that equals cost (or
basis) plus ½ the Fair Market Value of the donated food,
not to exceed twice cost.
A business may take the sum of one-half of
the unrealized appreciation (market value minus cost = appreciation)
plus the taxpayers cost, but not in excess of twice the cost of
the contributed property.
For example…
Selling price = $4.00
Cost = $1.00
Gross profit in this example equals $3.00
(½ of $3.00 equals $1.50)
The maximum deduction cannot exceed two times the cost ($2.00)
Therefore, the gross profit element is limited to $1.00
Total charitable deduction for this example = $2.00
In addition, for businesses other than C-corporations,
the aggregate value of donation deductions for in-kind gifts may
not exceed 10% of a business' aggregate net income for the taxable
year.
Please note: America 's Second Harvest does not
dispense tax advice to individual businesses. For more information
please see I.R.C. Section 170(e)(3)(B) and always consult with
a tax professional.
What Other Advantages to
Donating Exist?
In addition to the special deduction for donations
of wholesome food to charities, the Bill Emerson Good Samaritan
Food Donation Act (P.L.103-9X) provides liability protection for
food donors when they donate apparently wholesome food.
Another advantage to donating food is the public relations value
to customers and employees when donating for hunger relief efforts.
Will the New Law Become
Permanent?
America's Second Harvest and our network of food
banks is working with the Congress and our allies on Capitol Hill
to make the new law change permanent, to increase the deduction
to full Fair Market Value, and to provide additional protections
to food donors. Groups supporting the expanded food
donation tax incentive include: the Grocery Manufacturers of America,
the Food Marketing Institute, and the American Farm Bureau.
Contact:
Bob Morris
503-282-0555, Ext. 261
bmorris@oregonfoodbank.org
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