Question

Charitable Contribution Deduction Rules

describe the charitable contribution deduction rules applicable to corporations.

Answer 1

If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. However, corporations (other than Scorporations) can deduct charitable contributions on their [personal] income tax returns, subject to limitations.

Some corporations may meet the qualifications for electing to be S corporations. For information on S corporations, see the Instructions for Form 1120S.

Charitable Contributions

A corporation can claim a limited deduction for charitable contributions made in cash or other property. The contribution is deductible if made to, or for the use of, a qualified organization. For more information on qualified organizations, see Pub. 526, Charitable Contributions. Also see Exempt Organizations Select Check (EO Select Check)at www.irs.gov/charities, the online search tool for finding information on organizations eligible to receive tax-deductible contributions.

Note.

You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual.

Cash method corporation.

A corporation using the cash method of accounting deducts contributions in the tax year paid.

Accrual method corporation.

A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the due date for filing the corporation’s tax return (not including extensions). Make the choice by reporting the contribution on the corporation's return for the tax year. Attach a declaration stating that the board of directors adopted the resolution during the tax year. The declaration must include the date the resolution was adopted.

Limitations on deduction.

A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Figure taxable income for this purpose without the following.

The deduction for charitable contributions.

The dividends-received deduction.

The deduction allowed under section 249 of the Internal Revenue Code for bond premium.

The domestic production activities deduction.

Any net operating loss carryback to the tax year.

Any capital loss carryback to the tax year.

Farmers, ranchers, or Native Corporations.

Corporations that are farmers, ranchers, or Native Corporations should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit.

Carryover of excess contributions.

You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. You lose any excess not used within that period. For example, if a corporation has a carryover of excess contributions paid in 2016 and it does not use all the excess on its return for 2017, it can carry any excess over to 2018, 2019, 2020, and 2021, if applicable. Any excess not used in 2021 is lost. Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover.

Cash contributions.

A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Keep the record of the contribution with the other corporate records. Do not attach the records to the corporation's return. For more information on cash contributions, see Pub. 526.

Gifts of $250 or more.

Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. The acknowledgement should show the amount of cash contributed, a description of the property contributed (but not its value), and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgement must be obtained by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Keep the acknowledgement with other corporate records. Do not attach the acknowledgement to the return.

Contributions of property other than cash.

If a corporation (other than a closely held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. In addition, the corporation should keep a record of:

The approximate date and manner of acquisition of the donated property, and

The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution.

Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return.

A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000 ($20,000 for donated art work).

See Form 8283 for more information.

Qualified conservation contributions.

If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. For more information, see section 170(h) of the Internal Revenue Code.

Contributions of used vehicles.

A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. The deduction is limited, and other special rules apply. For more information, see Pub. 526.

Reduction for contributions of certain property.

For a charitable contribution of property, the corporation must reduce the contribution by the sum of:

The ordinary income and short-term capital gain that would have resulted if the property were sold at its fair market value, and

For certain contributions, the long-term capital gain that would have resulted if the property were sold at its fair market value.

The reduction for the long-term capital gain applies to:

Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption;

Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and

Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property.

Larger deduction.

A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. This deduction may be allowed for certain contributions of:

Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Special rules apply to qualified contributions of "apparently wholesome food" (see section 170(e)(3)(C) of the Internal Revenue Code).

Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science.

Contributions to organizations conducting lobbying activities.

Contributions made to an organization that conducts lobbying activities are not deductible if:

The lobbying activities relate to matters of direct financial interest to the donor's trade or business, and

The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor.

More information.

For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Pub. 526.