Although we recently described how the PATH Act was creating a windfall for food manufacturers, it warrants a little more scrutiny to see just how big of a deal this is.
As a recap, the PATH Act is a huge blob of tax code that covers everything from state and local sales tax deductibility to enhanced child tax credits to loosening up 529 education plan rules. But Bullpen is a company that helps food manufactures and distributors maximize the value of their excess inventory, so we’ll just focus on the ‘enhanced deductions’ stuff defined in IRC Section 170 and expanded/clarified by the PATH Act.
In many respects Congress has shifted some of the responsibility for feeding the country’s 50 million food-insecure to the food industry. In exchange, food companies will get high-value tax deductions that no other industry gets. From a taxpayer’s perspective, it’s kind of a wash… unless you happen to believe that private industry will somehow get more food to the needy faster and cheaper than the US government. 😉
Before all this IRC 170/PATH Act stuff, food companies could deduct just their cost basis for charitable donations of food. So whether the inventory just came off the production line or it was down to its last few days of code date, it didn’t really matter. With the introduction of IRC Section 170(e)(3), larger companies (C Corps) were allowed to take an enhanced deduction for donation of ‘wholesome’ food (basically no freezer-burned Nutraloaf) to 501(c)(3) type charities such as food banks and Feeding America.
But there were a lot of limitations. Here are a few:
- S Corps, LLCs and those that used cash accounting