TAX DEDUCTIONS & 170(E)(3) AT A GLANCE
Passed by Congress in 1976, Title 26 of the US Tax Code, Section 170(e)(3) encourages corporations to donate any excess inventory to qualifying non-profits and organizations as an alternative to liquidating their products. In exchange to this, the non-profit may qualify for an enhanced tax deduction.
In order to qualify for this deduction, a corporation must make a qualified contribution as described in Sec. 1.170-4A of the code.
The deduction, as defined in 170(e)(3)(B), is equal to the cost of the individual item plus half of the difference between the cost and the fair market retail value of the item, not to exceed twice the cost.
In other words, you can receive a tax deduction worth up to twice the cost of your donation. For regular C corporations, your deduction is equal to the cost of the inventory donated, plus half the difference between the cost and the fair market-selling price, not to exceed twice the cost. Please consult with your accountant for tax advice.
Cost = $10
Selling price = $30
Half the difference = $10
Deduction = $20
IRS Tax Exemption Status Letter – download the pdf
Links to IRS Tax Information: Tax Code for 170(e)(3) – download the pdf
How to Claim a Deduction for your Charitable Contributions http://www.irs.gov/pub/irs-pdf/p526.pdf
Determining the Fair Market Value http://www.irs.gov/pub/irs-pdf/p561.pdf
Donation Receipt Example - download the pdf