Question

. During the current year, Lavender Corporation, a C corporation in the business of manufacturing tangible research equipment, made charitable contributions to qualified organizations as follows:

	Research equipment (basis of $70,000, fair market value of $110,000), held as inventory, to a qualified educational organization that sells the valuable property for profit. The inventory was produced by Lavender earlier in the current year.
	Stock (basis of $30,000, fair market value of $65,000) in Olive Corporation, held for seven months as an investment, to United Way. (United Way plans on selling the stock.)
	Land (basis of $180,000, fair market value of $220,000), held for three months to State University. (State University plans on using the land for new dormitories.)

Lavender Corporation’s taxable income (before any charitable contribution deduction) is $1.5 million.

a.	What is the total amount of Lavender’s charitable contributions for the year?
b.	What is the amount of Lavender’s charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

Answer 1

Lavender's total amount of charitable contributions is 5375000 S90,000 (Inventory) + S65,000 (stock) +5220000 land)). computed as follows:

Inventory: this qualifies for the enhanced contribution amount available with respect to certain inventory, since it consists oftangible research property contributed to a qualified educational organization that uses the property for research training. The contribution amount is equal to the lesser of (1) the sum of the property 5 basis plus 50% of the appreciation on the property

[$90000 = $70,000 basis + 50%{$110.000 fair market value - $70,000 basis) or (2) twice the property's basis ($140,000 = 2( $70,000) basis). Thus, the amount of the contribution is $90,000

Stock: this is capital gain property, since a sale of the stock would result in long-term capital gain for Lavender Thus, the amount of the contribution is the stock's fair market value, or $65.000

Land: this is capital gain property, since a sale of the land would result in a long-term capital gain for Lavender. Thus, the amount of the contribution is the land fair market value, or $220,000

Lavender's current year charitable deduction is limited to $150,000 (10% $1.5 million (taxable income before charitable deduction), and the excess charitable contribution of $125,000 (S 375,000 - 5250,000) is carried forward to the five succeeding tax years.