There is a rule that a C Corp can deduct as a donation out of Inventory the wholesale value of the Inventory, even if the actual cost of the Inventory is less. Can an S Corp do this?
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Art Work
To give more info here, the client (an S Corp) is an Art Gallery and they are donating Art Work. There is a rule that they can deduct the wholesale value of the Inventory, even if higher than thier cost. Does this rule apply to Food only? Does it apply to C Corps only?
Thanks, any help you can give is much appreciated. -
A special rule exists, but that's all you got right......
TTB SB 2-10
Special exception for contributions of inventory to certain
organizations. The amount deductible by a C corporation for a
contribution of inventory to certain organizations is reduced by
only 50% of the amount that would have been ordinary income if
sold at FMV. This deduction is limited to twice the corporation’s
basis.
The contribution must be to a 501(c)(3) organization, the property
must be used by the organization solely for the care of the
ill, the needy, or infants, the donee organization cannot transfer
the property in exchange for money, other property, or services,
and the donee organization must provide the corporation with a
statement to that effect. [IRC §170(e)(3)]
Example: Blanket Corporation donates inventory to a homeless shelter,
a 501(c)(3) organization. Blanket’s basis in the inventory is $450, and
FMV is $1,600. If sold at FMV, the amount that would have been ordinary
income is $1,150 ($1,600 – $450). Reducing the deduction by 50% of the
amount that would be ordinary income brings the amount to $1,025.
Since the deduction is limited to twice the corporation’s cost in the
property, the deductible amount is $900 ($450 × 2).Comment
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