The IRS has imposed limitations of deductibility of Charitable contributions made by a C Corporation.
In general, the corporations have no restrictions on the amount of charitable contributions that they make. However, obtaining a current year tax deduction is another matter.
The IRS rules state the the Corporation is entitled to deduct upto a maximum of 10% of a Corporations net taxable income without consideration of NOL and Charitable contribution. In other words, calculate the taxable income w/o deduction of charitable contribution, and a maximum limit is 10% of this taxable income.
Therefore, if there is no taxable income, the corporations would not be able to deduct charitable contributions for that calendar year.
I guess the next question would be, what if your client, the C corporation made a contribution in excess of the 10% limit. Well, the IRS allows the Corporations to simply carryover the excess to future years, to allow deductions in those years provided the rules for deductibility are met.
Last edited by TaxGuru : 01-29-2007 at 10:46 AM.