IRS §170 details charitable contributions as taken by individual and corporate taxpayers on their income tax returns. A provision outlined within this section allows the donation of inventory by a corporation to a qualified organization, usually a 501(c)(3) or a private operating foundation (not a private foundation.) Additionally, the donee organization must use the inventory or property solely for the care of the ill, the needy or infants. Finally, the donee cannot sell or transfer for money, other property or services. It must be given away to those in need. In practice, this also requires the donee to ensure those receiving the goods do not turn around and sell them on second-hand sites like e-bay. In return for these donations, the corporation can take advantage of an enhanced deduction—a deduction of its basis for the inventory, plus one-half of the property’s unrealized appreciation, not to exceed twice the basis of the property. This enhanced deduction is only available to a C-Corp as other entities are limited to the lesser of the cost basis or Fair Market Value.1
The Green Mission Inc., was very excited to speak with Greg Bales of Morning Day Community Solutions. They operate a Framing Hope Warehouse, which supplies home products to over 250 nonprofit members in South Florida, including local veterans. Donations of home products and supplies are received from Home Depot stores as well as other retailers within the Broward, Palm Beach and Miami-Dade counties. Excess inventories from retailers has ended up in landfills in the past but programs like this, divert these products to where they are critically needed.2
Programs like this impede the practices of some retailers of throwing out excess inventory including the example of Amazon, which was found to have discarded 293,000 items to the dump over a nine-month period in the U.K. and France.3 Some retailers find it more expensive to return and reshelf inventory and may choose to toss it rather than deal with the costs of resale. Ensuring corporations are educated as to this option of donation will not only provide tax incentives with the enhanced deductions but will provide critically needed materials to those in need.
However, certain regions sometimes end up with excess inventories of goods they cannot possibly give away within their community and sometimes require disposal. If organizations could find an effective medium of communicating their local recipient’s needs as well as letting other organizations know the excess inventory accumulated, disposal of inventory could be minimal. Small organizations might not have the exposure or ability to communicate their needs to donating corporations—receiving minimally, while others are well-known and receive too much. Organizations could work together in regional hubs to transfer materials to other qualifying organizations and the maintenance of IRS requirements would be met because the inventory would not be sold—just transferred from one qualifying organization to another.
