|
Thursday, May 2, 2024
 |
Case Studies |
Gift of Medical Supplies
|
Case:
Fred and Wilma Sandrock founded a wholesale distribution company years ago. Over the years, they have continued to expand their distribution of many types of supplies. They operate a fleet of delivery vehicles that provides small drug stores and convenience stores with a variety of inventory. Some of the inventory includes basic medicines and medical supplies.
Last week there was a major earthquake in their community. The earthquake measured 9.0 on the Richter scale. It was one of the largest earthquakes ever recorded on the West Coast of the United States. The local relief charity sent out an urgent request for much-needed medical supplies. Thousands were injured when buildings collapsed and many people were in dire need of medical assistance.
Fred and Wilma were very prompt in responding to this natural disaster. They donated large quantities of medicines, bandages and other types of medical supplies immediately to the relief agency.
Question:
While their gift from their C corporation, Regional Distributors, Inc., was motivated by a genuine desire to assist those in dire medical need, will the corporation also receive an enhanced charitable deduction?
Solution:
Gifts of inventory are normally deductible only at cost basis. Sec. 170(e)(1). However, there is an exception for gifts that are used for "the care of the ill, needy or infants." With this exception, a larger deduction is available for Regional Distributors, Inc. Sec. 170(e)(3)(A)(i).
The larger deduction is the lesser of twice the cost basis or one-half of the appreciation of the property plus the cost basis.
After the immediate emergency was over, the Regional Distributors, Inc., CFO added up costs for all of the donated supplies. The cost basis for the medical supplies contributed was $20,000, and the retail fair market value of the supplies would be $50,000.
Twice the cost basis would be two times $20,000, or $40,000. However, the cost basis of $20,000 plus one-half of the appreciation, or $15,000, equals $35,000. Since the deduction is for the lesser of the two numbers, Regional Distributors, Inc., is permitted to deduct $35,000.
The deduction is qualified because the medicines are given to persons who require medical care. Reg. 1.170-4A(b). The relief agency also provided a letter to Regional Distributors, Inc., thanking them for the gift, noting that no goods or services were transferred to the donor as part of the gift and stating that the supplies were indeed used for medical relief purposes.
|
|
|
|
