IRS provides record-keeping relief for corporate charitable contributions

Authored by Paul Dillon, Michelle Hobbs and Pat Balthazor

Generally, a corporation’s charitable contribution deduction cannot exceed 10% of taxable income. The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded this deduction to 25% of taxable income for cash contributions made during calendar years 2020 or 2021. At the end of December, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) further expanded the limitation to 100% of taxable income for certain qualified disaster relief contributions.

A qualified disaster relief contribution is a cash contribution that is:

•  Paid between Jan. 1, 2020, and Feb. 25, 2021
• Made for relief efforts in one or more qualified disaster areas
• Documented with a contemporaneous written acknowledgement from the charity which includes a statement that the contribution was used (or will be used) for relief efforts in one or more qualified disaster areas
  – Corporations may have to go back to the donee to obtain documentation that includes the above statement, if not reflected in the receipt they currently have; such documentation must be obtained before the return reflecting the deduction is filed (see below)

Taxpayers elect to apply this qualified disaster relief contribution rule by computing its deductible amount of qualified contribution using the increased limit and claiming the amount on the income tax return for the year in which the contribution was made. Qualified disaster relief areas are those under a major disaster declaration by the president (declared between Jan. 1, 2020, and Feb. 25, 2021) and listed by the Federal Emergency Management Agency (FEMA) as such between Dec. 27, 2019, and Dec. 27, 2020. This designation does not include any disasters related to COVID-19.  

Contemporaneous records – Since these changes were enacted so late in 2020, the IRS recently issued a release providing limited relief from the contemporaneous written acknowledgement requirements. Acknowledgement must be obtained by the organization before the corporation timely files its tax return (including extensions). With respect to qualified cash contributions made before Feb. 1, 2021, the contemporaneous written acknowledgement does not have to contain the disaster relief statement referenced above.

For more information about how these issues may affect you, connect with your Baker Tilly tax professional.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.