Charitable Contributions of Food Inventory: Proposals for Change (CRS Report for Congress)
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| Release Date |
Revised Oct. 8, 2008 |
| Report Number |
RL31097 |
| Report Type |
Report |
| Authors |
Pamela J. Jackson, Government and Finance Division |
| Source Agency |
Congressional Research Service |
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Summary:
Tax law provides an enhanced deduction for certain charitable contributions of food inventory. The value of the existing deduction is the corporation's basis in the donated product plus one half of the amount of appreciation, as long as that amount is less than twice the basis in the product. This deduction has generally been limited to contributions made by a certain type of corporation, C corporations.
The Katrina Emergency Tax Relief Act of 2005 (KETRA, P.L. 109-73) temporarily extended the enhanced deduction to include contributions made by other types of businesses, sole proprietors, partnerships, and S corporations in particular. The Pension Protection Act of 2006 (P.L. 109-280) further extended the temporary expansion of qualified donors through January 1, 2008. The Emergency Economic Stabilization Act of 2008 (H.R. 1424; P.L. 110-343), which was signed into law on Friday, October 3, 2008, retroactively extends the temporary expansion of eligible donors through December 31, 2009.
Other legislation in the 110th Congress has also proposed changes to the deduction. S. 689 proposes to permanently extend and expand the charitable deduction for contributions of food inventory, while H.R. 3976 proposes making the provision permanent. H.R. 3996 and H.R. 6049, both passed by the House, include provisions to retroactively extend the temporary expansion of eligible donors through December 31, 2008, as do H.R. 3970, S. 3335, and S. 3125. S. 2886, S. 3098, and S. 3322 and its companion H.R. 6587 H.R. 3628 proposes extension through 2011.
Additionally, S. 1132 proposes to qualify Indian tribes as eligible recipients of tax deductible contributions of food inventory. S. 2420, the Federal Food Donation Act of 2008, which became law in June 2008 (P.L. 110-247), revised the Federal Acquisition Regulation to require certain contracts to private entities to include a clause that encourages the donation of food.
A review of charitable giving by the 50 companies that were the largest corporate donors revealed that five food concerns in that group showed substantial in-kind giving in 1999. Other companies in the pharmaceutical/health care or computer/information technology industries also made substantial in-kind gifts. These firms, like food companies, are provided an enhanced deduction for in-kind gifts. It appears that in the case of large firms, the enhanced deduction has stimulated contributions.
Although the temporary expansion of the enhanced deduction may have the effect of reducing equity differences between C corporations and other business concerns, it may not entirely eliminate them. If the intent is to resolve the equity issues, transforming the deduction to a credit might be more effective. Unlike deductions, whose value is based on the tax rate of the taxpayer, tax credits provide dollar-for-dollar value and do not fluctuate with the taxpayer's marginal tax bracket.
This report will be updated to reflect major legislative developments.
