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GuideGuideDonationDonation

Table of ContentsIntroduction

Chapter 1: Bill Emerson Good Samaritan Act of 1996

Introduction to the Law

Understanding the Legal Protections

What this Law Means for Business Owners

How Do I Get A Copy of the Pertinent Law

Chapter 2: The Feeding America PATH Act

Introduction to the Law

Understanding What the PATH Act Means for Donation Partners

Example Calculations

Chapter 3: The New Enhanced Federal Tax Deduction

Introduction to the Law

Understanding the Enhanced Tax Credit

Eligibility Requirements

Conclusion

INtroduct ionFood donation is a huge aspect of the modern retai l and groceryindustry. Often, retai lers are stuck with food that they can’t use orsell , whether because of customers losing interest in an item,excessive ordering, or any number of other factors.

Donating this food to any number of charitable organizations is afantastic way to put it to good use. Per Feeding America, i t ’sestimated that 70 bil l ion pounds of food that could otherwise beconsumed are sent to landfi l ls each and every year. This foodcould be used to feed hungry famil ies. It ’s estimated that nearly30 mil l ion Americans, including 12 mil l ion children, regularlysuffer from risk of hunger.

Much of this is because business owners don’t understand therelevant legislat ion that protects them from risk, al lows them towrite off charitable donations on taxes, and provides legalavenues through which these deductions can be taken. Theseregulations can be hard to put into every language, so many storeowners and business managers are unaware of their abi l i ty to notonly donate food to help others – but to enjoy tax breaks, legalprotection, and other benefits from doing so.

So in this short ebook, we’l l take a look at the three mostimportant pieces of legislat ion that protect business owners andallow them to easily donate and write off quali ty foods fordonation: The Bil l Emerson Good Samaritan Act Of 1996, theFeeding America PATH Act, and the New Enhanced Federal TaxDeduction, and explain them thoroughly – in terms that anybusiness owner without a legal background can understand.

Chapter 1

The Bill Emerson GoodSamaritan Act of 1996

The Bil l Emerson Good Samaritan Act was signed into law byPresident Bil l Cl inton in 1996. As the name may suggest, this lawwas designed to protect “Good Samaritans” when donating food.

Before this law was implemented, complex state, county, andlocal regulations often restr icted the abil i ty of business owners todonate food. Because there was no clear, comprehensive legalprotection that prevented these companies from being liableshould one of their products make any person sick, many of themrefused to donate food entirely, instead dumping perfectly ediblefoods into landfi l ls, rather than face potential legal l iabi l i ty forany i l lness caused by a donated product.

The Bil l Emerson Good Samaritan Act changed this byintroducing federal ly-regulated legislat ion that protects good-faithdonors from both civi l and criminal l iabi l i ty, should a productmake a recipient sick. This al lowed for uniform federal protectionof al l donated food, even across state l ines.

The Emerson Good Samaritan Act protects al l food donors,including individuals, businesses, and nonprofi ts who offerdonated products in good faith. With the exception of grossmisconduct, any business capable of donating food is protectedfrom liabi l i ty, should a donated product make an individual sick.

Introduction To The Law

Understanding the Legal Protections

The Emerson Act protects al l food and grocery products that meetlabeling, quali ty, and other standards imposed by local, state,and federal laws and regulations, and allow food that may nototherwise be marketable – due to age issues, lack of freshness,fai lure to meet required grading and size restr ict ions, and othercondit ions that don’t affect the actual quali ty and safety of thefood to be donated at wil l , as long as it meets relevant quali tyand safety regulations.

Simply, this law means that business owners who donate food aresafe. If you have food that would otherwise go to waste, and itsquali ty is acceptable per al l relevant regulatory agencies, you candonate it – not just local ly, but statewide, or even nationally.

As long as you act in good faith and avoid criminal negligence(wil l ful ly and intentionally donating harmful foods) you areprotected from legal l iabi l i ty. You can donate safely, and knowthat your foods won’t be wasted – and enjoy the tax breaks thatcome with this donation.

If you or your legal team desire to read the ful l text of the law, itcan be found online here.

What this Law Means for Business Owners

How Do I Get A Copy Of The Per tinent Law?

Chapter 2

The Feeding AmericaPATH Act

The PATH Act is a tremendously large piece of legislat ion. Itimproves tax incentives and several expansions to the EIC(Earned Income Tax Credit), the Child Tax Credit, the AmericanOpportunity Tax Credit, and mult iple other pieces of legislat ionfirst enacted in ARRA – The American Recovery andReinvestment Act of 2009.

The December 18, 2015 version of this legislat ion enacted byCongress includes several provisions related to tax incentives fordonors of foods, including the four fol lowing provisions:

This provision allows both C and non-C corporations topermanently enjoy the benefits of enhanced tax deductions, andit applies retroactively to any donations made in 2015.

This al lows smaller businesses who were not previously el igiblefor C corporation status to claim the same deductions that largercorporations can.

In addit ion, non-C corporations are now able to carry theirdeductions forward for 5 years, putt ing them on equal ground withlarger C corporations.

Introduction To The Law

1. Making permanent the extension of deductions to all non C

corporations & allowing non C Corporations to carry forward their

deduction for 5 years

Smaller farmers often use “cash method” accounting, whichmakes it hard to determine the value of foods donated. By sett ingthe cost of production at a flat 25% of the fair-market value of thefood, smaller farmers can now easily calculate the profi ts theywould have gotten from sell ing the food, and easily takedeductions on donated foods.

2. Allowing “cash method” accounting taxpayers to easily calculate

cost of producing food by allowing for a flat calculation of the “cost”

of donated food at 25% of its fair market value

Put simply, by increasing the amount of charitable contributionsthat can provide a tax deduction, companies are encouraged tomax out their giving potential whenever possible.

3. The 10% net income cap of charitable contributions for donated

food was increased to 15% net income, allowing more donations.

This rul ing is crucial for the understanding of modern fooddonation and tax deduction procedures.

This act establishes a protocol for the Fair Market Value (FMV) offoods not sold on the market – essential for calculating taxbenefits based on the IRS code. This includes:

Donations that cannot otherwise be sold because ofoverproduction or being out-of-specif ication may be valuedat the same price of other similar food items being sold bythe taxpayer

The out-of-specif ication expansion allows for out-of-dateproducts to be donated, while sti l l maintaining a taxdeduction value

4. Codifying an important Tax Court ruling: Lucky Stores, Inc. v.

Commissioner of Internal Revenue

By reducing the costs associated with donation, this act al lowscompanies who may previously have simply thrown away food toreconsider – and gain tax breaks by doing so.

This rul ing allows nationwide retai lers to establish a FMV (FairMarket Value) of their products as the same original sel l ing priceof a fresh, saleable product.

The fact that this rul ing has allowed these changes to becomepermanent now allows grocers and retai lers to invest inpermanent donation processes with easily calculable values, andenjoy tax breaks when donating excess goods – while sti l l gett ingvaluable tax deductions from food that would otherwise gowasted.

A specif ic protocol designed to value products in thesecircumstances, al lowing companies unused to FMVcalculations to quickly and easily value their products, andreduce the incremental costs of donating:

Products produced specif ical ly for donation

Off spec products previously landfi l led or sold for animalfeed

Bulk products that may otherwise be used for animal feedor may be landfi l led that are packaged in consumer-fr iendly materials

Relabeled products and products missing allergeninformation that may otherwise be landfi l led

Understanding What The PATH Act Means ForDonation Par tners

Here is a quick example of the calculations used to determineFMV of donated goods.

The formula goes as such: The charitable value of a donatedgood is equal to one-half of the unrealized appreciation (FMV -cost of goods sold = appreciation) PLUS the cost of goods sold,never to exceed twice the cost of the contributed property.

“To see this in numeric form, let us consider a good (lets say ascratch bakery product) with a Fair Market Value of $2.00, whichcosts the retai ler $0.50 and then a canned good with the sameFMV of $2.00 but with a $1.50 cost to the retai ler. These twoexamples wil l i l lustrate what the deduction looks l ike when thecost + 50% of margin is the lesser and usable amount.

This value may be taken for al l general charitable deductions, nomatter the specif ics of the organizations involved.

1. Donation price = ($2.00 - $0.50).

1. Donation price = ($2.00 - $1.50).

2. Divide this by two to get $0.25, and then re-add the cost of thegoods ($1.50).

3. This brings us to $1.75 deduction. Now since the totaldeduction value wil l be capped at $3.00, as the maximum value iscapped at 2x the Cost Of Goods (COGS)

4. So, in this case we don't hit the cap and you get a donationvalue of $1.75”

2. Divide this by two to get $0.75, and then re-add the cost of thegoods ($0.50).

3. This brings us to $1.25 deduction – however, the totaldeduction value wil l be capped at $1.00, as the maximum value iscapped at 2x the Cost Of Goods (COGS)

4. In this case, we get a total donation value of $.50x2 = $1.00 .

Example Calculation

Scratch bakery product

Canned good

Chapter 3

The New EnhancedFederal Tax Deduction

This law provides the basis for federal tax deduction credits thatexceed the basis of al l businesses, including C-corporations, S-corporations, l imited l iabi l i ty corporations (LLCs), partnerships,and sole proprietorships.

Simply put, this is a method by which donating food to part icularorganizations can allow a company to get much larger tax creditsbased on the value of their products, as compared to the generalcharitable donations usually undertaken by these companies.

This enhanced tax deduction allows companies not to take adeduction based on cost of producing a good, but to value it at amuch higher rate, al lowing for greater tax deductions on smalleramounts of food.

The law allows donors to value their donations based on thelesser between two amounts: (a), 2x the amount paid for theproduct and (b), the amount paid for the product added to one-half of the expected product margin.

Introduction To The Law

Understanding The Enhanced Tax Credit

Eligibility Requirements

There are three eligibi l i ty requirements to take this enhanced taxcredit.

1. Food must be donated to qualified 501(c)(3) nonprofits that use the

food solely for the Ill, the needy, or infants.

All donations must go to a registered, above-board 501(c)(3)nonprofi t that has proven charitable use for the food.

2. The receiving nonprofit must use the donated food in a manner

consistent with the purpose of the 501(c)(3) status, meaning used for

1 of the above 3 purposes.

Care must be taken to ensure that nonprofi ts are adhering toregulatory measures to maintain their 501(c)(3) status.

3. The receiving nonprofit cannot transfer the food "in exchange for

money, other than property, or services."

Essential ly, the nonprofi t is disal lowed from resale of the food inany manner.

To quali fy for this tax deduction, the business owner must furnishfour items to tax organizations, as according to the 2013 fooddonation tax guide.

1. A descript ion of the contributed property, including the date ofits receipt;

2. A statement that the property wil l be used in compliance withthe requirements of I.R.C. 170(e)(3)

3. A statement that the recipient organization is recognized asexempt from federal income tax under I.R.C.501(c)(3):

4. A statement that adequate books and records wil l bemaintained and made available to the Internal Revenue Serviceupon request.

Business owners who adhere to these regulations can enjoy taxbreaks even greater than those provided by PATH, simply bydoing some basic research on charitable organizations, keepingadequate records of donations, and furnishing requireddocumentation to the IRS. Below is an example of the value youcan expect from an enhanced deduction documented in thismanner.

Benefits to Business Owners

Suppose your store has a sack of onions they donate. It ’s valuedat $100 – this would be its value sold on the fair market. The costof the onions was $30 – this is the “basis value”. Your expectedprofi t margin would then be $100 - $30 = $70.

Under enhanced deduction guidelines, there are two potentialdeduction values.

1. Basis value of product x2 = $60.

2. Basis value of product + (profi t margin/2) = $30 + (70/2) = $65.

Example Enhanced Deduction Sample

As the first value is lower, this is the value taken duringdeduction. As may be clear, this is sti l l twice the value of ageneral deduction, making the enhanced deduction process veryappealing for stores wishing to cap their charitable donations forthe year.

Conclus ionIn a world ful l of inequali ty, i t ’s great to see that governmentalregulations are making it easier for private companies – includingsmaller businesses – to more simply and easily donate theirgoods to charitable organizations, and enjoy substantial taxbreaks when doing so.

These three laws – The Bil l Emerson Good Samaritan Act Of1996, the Feeding America PATH Act, and the New EnhancedFederal Tax Deduction – have provided American businesses witha clear path forward, and enhanced the abil i ty of organizations todonate food to charit ies without fear of l iabi l i ty, and allow them totake larger tax deductions on their donated goods.

Hopeful ly, now that our Food Donation Guide has helped youunderstand the pert inent rules and regulations of food donation,your company – whether large or small – can move forwardconfidently with increased giving to those who are in need.

These three laws set forth a framework in which companies don’tjust help those in need – they help themselves by reducing wasteand gaining tax breaks. That makes food donation a win-win foreveryone involved.

So don’t wait. Start donating your high-quali ty excess food today.Those in need wil l thank you – as wil l your bottom line come taxseason.

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