CPA Regulation (REG) : Charitable Contribution Deduction
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Example Questions
Example Question #1 : Charitable Contribution Deduction
Which of the following types of organizations is considered a public charity for purposes of the charitable contribution deduction?
Religious organizations.
Cemetery companies.
Supplemental unemployment benefit trusts.
Chambers of commerce.
Religious organizations.
Under the section 170(c) of the Internal Revenue Code, the charitable contribution deduction only applies to specific organizations. Among these include organizations such as government owned possession (if made exclusively for public purposes), a foundation organized exclusively for the public good, religious organizations, and nonprofit cemetery companies. Chambers of Commerce are considered political organizations and are disallowed, and supplemental unemployment benefits are not IRS designated charities.
Example Question #2 : Charitable Contribution Deduction
Which of the following transactions would not qualify as a charitable contribution by a corporation in order to receive the charitable contribution deduction?
Two $2,500 awards to local religious groups
A $3,000 contribution to a political party
A $500 check written to a nonprofit entity.
A $10,000 grant to a University
A $3,000 contribution to a political party
Donations to political parties, whether by a corporation or an individual, never qualify for charitable contributions. Donations made to nonprofits (which includes universities and colleges) as well as to religious groups qualify for the charitable contribution deduction.
Example Question #3 : Charitable Contribution Deduction
For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
$15,000
$8,000
$20,000
$23,000
$20,000
C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
Example Question #4 : Charitable Contribution Deduction
A corporation deduction for charitable contributions that exceed the current limit for deduction in one year can be carried back __ years and forward __ years.
0, 5
5, 0
5, 3
3, 5
0, 5
For the corporate charitable deduction, there is no carryback and only a 5 year carry forward period.
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