Question

The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 27, 2018. One topic on the
board’s agenda is the approval of a $25,000 gift to a qualified charitable organization. Orange has a $20,000 charitable contribution carryover to 2018 from a prior year.

Identify the tax issues the board should consider regarding the proposed contribution.

Answer 1

ANSWER:

The tax issues to be considered are:

• Sec. 170(b)(2)(A) generally limits the amount of a corporation’s charitable deduction to no more than 10% of the corporation’s taxable income.
• Furthermore, Sec. 170(b)(2)(C) states that taxable income for this purpose is computed without regard to the charitable deduction itself, NOL carrybacks, capital loss carrybacks, and the Sec. 199 deduction.
• Sec. 170(d)(2) provides for a carryover period of five tax years for charitable deductions a corporation makes in a tax year that exceed the 10% limit.
• In determining which charitable contributions are deductible in a given tax year, current-year contributions take priority over carryover contributions.
• The 10% limit on charitable deductions also applies in computing a corporation’s alternative minimum taxable income (AMTI).