Charitable Contributions of Inventory Regulations Subject of AICPA Letter to IRS

The American Institute of CPAs (AICPA) has submitted recommendations to the Internal Revenue Service (IRS) with respect to guidance under Internal Revenue Code sections 170(e)(1) and 170(e)(3) regarding charitable contributions of inventory by corporations.

In a June 7 letter to the IRS, the AICPA recommended revising the regulations related to charitable contributions of inventory under section 170(e)(1) to include costs and expenses which are part of the basis of contributed inventory, in cost of goods sold for the year of contribution.  “This rule should apply regardless of whether such costs and expenses were incurred prior to or during the year of contribution, as well as when the basis of the contributed inventory exceeds the fair market value (FMV) of the contributed inventory,” wrote Troy K. Lewis, CPA, CGMA, chair of the AICPA Tax Executive Committee.

The AICPA’s letter also recommends “revising the regulations related to qualified contributions of inventory under section 170(e)(3) to provide an inclusion of the basis of the contributed inventory in the cost of goods sold in the year of the contribution.  Additionally, we recommend treating only the amount of the deduction in excess of the basis (“the enhanced deduction”) as a charitable contribution deduction subject to the 10 percent taxable income limitation under section 170(b)(2)(A) or the 15 percent limitation under section 170(e)(3)(C)(ii),” Lewis stated.