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Understanding charitable representing that its use and dis- To illustrate this point, let’s assume
donations of inventory position of the property will be in Corporation X purchased inventory
and other property accordance with #1 and #2 above. for $1,000 and, as of the date of the
contribution, the fair market value of
continued from page 1 4. If the property is subject to the the inventory was $5,000. If the prop-
Federal Food, Drug, and Cosmetic erty were sold in the corporation’s
Requirements Act, such property must fully satis- normal course of business, the corpo-
fy the requirements of The Act for ration would pay income tax on a
In order to qualify for the increased
180 days prior to the contribution gain of $4,000. However, assume that
deduction, the donation must be
date. (Also, any donation of food instead of selling the property, the
made to a 501(c)(3) public charity
inventory must meet the definition corporation donated it to Charity Y.
organization and must meet four
of apparently wholesome food.) Based on these facts, the corporation
requirements:
would be entitled to a deduction of
1. The use of the property is related Calculation of deduction $2,000 (the lower of either $3,000,
to the organization’s exempt pur- Instead of deducting the corpora- basis plus half of the ordinary
pose and must be used for the tion’s basis in the inventory, the cor- income, or $2,000, twice the basis).
care of the ill, needy or infants. poration may deduct the lower of It’s important to note here that the
2. The property is not transferred to 1) the basis in the property plus half deduction is still limited to 10 per-
of the ordinary income that would cent of corporate taxable income.
the organization in exchange for
have been recognized if the proper-
money, other property or services.
ty were sold at fair market value on If you have any questions regarding
3. The taxpayer receives from the the contribution date, or 2) twice the this deduction, please contact Kerry
organization a written statement basis of the property. at (410) 720-5220.
The statements contained herein are provided for informational purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal,
state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. Furthermore, such statements are not presented or intended as, and should not be taken
or assumed to constitute legal advice of any nature, for which advice it is recommended that you consult your own legal counselors or professionals.
UHY Advisors, Inc., provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc.,
and its subsidiary entities offer services from offices across the United States. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent
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