Charitable Contributions of Food and Book Inventories

Generally, taxpayers may deduct the cost of inventory donated to a charity. For certain contributions of inventory, an enhanced deduction is available for C corporations, which is equal to the lesser of (1) basis plus one half of the item’s appreciation OR (2) two times basis. To be eligible for the enhanced deduction, the contributed property generally must be inventory of the taxpayer, contributed to a 501(c)(3) charitable organization (except for private nonoperating foundations), and the donee must (1) use the property consistent with its exempt purpose solely for the care of the ill, the needy, or infants (2) not transfer the property in exchange for money, or other property or services, and (3) provide the taxpayer a written statement that the donee’s use of the property will be consistent with such requirements. Donors must reduce cost of goods sold by the lesser of the fair market value of the property or the donor’s basis in the inventory.

Effective for contributions after August 1, 2005 and before January 1, 2006, this enhanced deduction is available also to sole proprietorships, S corporations, and partnerships for food and books. The contribution is limited in each case to 10 percent of the entity’s net income. Food contributions are limited to “apparently wholesome food,” which is defined as food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. Book contributions must be made to a qualified public school that provides elementary and/or secondary education (K-12) and that certifies in writing that the contributed books are suitable, in terms of currency, content, and quantity and will be used by the school for its educational programs.

From December 2005

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