Wednesday, January 30, 2013

Enhanced Charitable Deductions for Businesses

Generally speaking, a charitable donation by a business enables it a deduction from taxable income equal to the fair value of the donated item less whatever ordinary income would have been gained on the item.  In other words, the general rule is that donations of inventory only permit a deduction equal to their cost.  However, some provisions have been enacted that provide “enhanced” deductions for certain donations.  Under IRC section 170(e)(3), a business that donates items that are put to use by a charity or operating foundation to help the needy (e.g., food, clothing, medicines) is eligible for deduction not equal to cost but instead the lesser of (i) twice cost or (ii) the midpoint between cost and market value.  Over the years, this provision has been expanded (and contracted) to include different types of business entities, different types of donations, and different types of donees.  These enhanced deduction provisions have some notable effects:

Wednesday, January 23, 2013

Class Action Settlements and Charities

One little known source of funds for a variety of charities is in the form of unclaimed class action settlement funds.  Such funds are awarded to charities under the "cy pres" doctrine.  The idea is that if a class of individuals is subject to receive funds as part of a class-action settlement, often many class members fail to claim their funds (due to relocation, inconvenience, etc.).  While the default outcome in such cases is that unclaimed funds revert to the defendant, there has been an increasing interest for unclaimed funds to go to a charity or charities related to the plaintiffs interests (or even just in the interests of society).  The thinking is that such outcomes are more in line with the intent of class participants than returning funds to the defendant would be.