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Treasury Responds to Request for Guidance on Charitable Deduction for S Corps Donating Food

AUG. 2, 2007

Treasury Responds to Request for Guidance on Charitable Deduction for S Corps Donating Food

DATED AUG. 2, 2007
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August 2, 2007

 

 

The Honorable Richard G. Lugar

 

United States Senate

 

Washington, DC 20510-1401

 

 

Dear Senator Lugar:

Thank you for your recent letter regarding the tax issues raised by an S corporation's charitable contribution of food inventory. After consulting with the Office of Tax Policy, I want to offer the following response to your letter. The issues presented in your letter are important, and as explained below, the Treasury Department and Internal Revenue Service (IRS) are working to address them.

As you noted, an S corporation's charitable contribution of food inventory or other appreciated property should adjust the shareholder's tax basis in his stock only by the adjusted basis in the contributed property. The Pension Protection Act of 2006 addressed that concern by amending section 1367(a)(2) of the tax code to provide that a shareholder's tax basis in his S corporation stock is reduced by his pro rata share of the tax basis of a charitable contribution. While this provision applies only for taxable years beginning after December 31, 2005, and before January 1, 2008, the Administration's Fiscal Year 2008 Budget contains a proposal to make this amendment permanent.

You also address section 1366(d) of the tax code, which limits a shareholder's losses and deductions (including charitable-contribution deductions) to the sum of the shareholder's basis in his stock of the S corporation and indebtedness of the S corporation to the shareholder. The Office of Tax Policy and IRS are aware that there are concerns regarding the application of the basis-limitation rules for charitable-contribution deductions. We are considering guidance regarding this issue.

Thank you for your letter on this important matter.

Sincerely,

 

 

Kevin I. Fromer

 

Assistant Secretary

 

for Legislative Affairs
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