The Internal Revenue Code Section 170(e)(3) allows an enhanced deduction for qualifying contributions of food inventory. Basically this deduction is equal to the basis of the property contributed plus one half of the appreciation, not to exceed twice the basis. This amount would be treated as a contribution and cost of goods sold would be reduced by the basis of the property contributed.
The Congressional intent of this code section is to encourage charitable contributions of excess inventory. Some of the problems encountered during the examination are as follows:
- Taxpayers taking enhanced deductions but not reducing the cost of goods sold by the basis of the property
- Contributions made to organizations which are not qualifying organizations
- Fair market value (this is the area where most disputes between the taxpayer and the revenue agent occur)
Although investment tax credit no longer exists, the definition of Section 38 property is used to help make determinations about the characterization of property as either Section 1245 or Section 1250 property. This coordinated issue paper discusses whether or not investment tax credit is allowed for refrigerated structures. The coordinated issue paper is a summary of relevant Revenue Rulings and Letter Rulings discussing various fact patterns.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.