Deduction Limit Increases for Corporate Disaster Relief Contributions

Corporations may qualify for the new 100% limit for disaster relief contributions. The IRS is also offering a temporary waiver of the recordkeeping requirement for corporations otherwise qualifying for the increased limit.

tax cpaThe limit for contributions paid in cash for relief efforts in qualified disaster areas was temporarily increased to up to 100% of a corporation’s taxable income by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA of 2020), enacted December 27.

Qualified disaster areas are defined as a major disaster has been declared under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, but doesn’t include any disaster declaration related to COVID-19.

Qualified contributions must be paid by the corporation beginning on January 1, 2020, and ending February 25, 2021. Cash contributions to most charitable organizations qualify for this increased limit. Contributions made to a supporting organization or to establish or maintain a donor advised fund do not qualify.

A corporation elects the increased limit by computing its deductible amount of qualified contributions using the increased limit and by claiming the amount on its return for the tax year in which the contribution was made.

Corporations must meet the usual recordkeeping requirements that apply to charitable contributions, including obtaining a contemporaneous written acknowledgment (CWA) from the charity. The CWA must be obtained before the corporation files its return, but no later than the due date, including extensions, for filing that return.  A corporation’s CWA must include a disaster relief statement, which states that the contribution was used (or will be used) by the eligible charity for relief efforts in a qualified disaster area.

Some corporations may not have obtained a CWA that includes the disaster relief statement due to the timing of the new law, so the IRS will not challenge a corporation’s deduction of any qualified contribution made before February 1, 2021, solely on the grounds that the corporation’s CWA does not include the disaster relief statement.

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