Corporations’ disaster relief contributions made before February 25, 2021, may qualify for a new 100% limit.
Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, the limit for contributions paid in cash for relief efforts in qualified disaster areas has been temporarily increased to 100% of a corporation’s taxable income.
The new law does not include any disaster declaration related to COVID-19. Otherwise, it includes any major disaster declaration made by the president during the period beginning on January 1, 2020, and ending on February 25, 2021, as long as it is for an occurrence specified by the Federal Emergency Management Agency (FEMA) as beginning after December 27, 2019, and no later than December 27, 2020. For a list of disaster declarations, visit FEMA.gov.
Qualified contributions must be paid by the corporation during the period beginning on January 1, 2020, and ending on February 25, 2021. Cash contributions to most charitable organizations qualify for this increased limit. Contributions made to a supporting organization or to establish or maintain a donor-advised fund do not qualify.
A corporation elects the increased limit by claiming the deductible amount of qualified contributions on its return for the tax year in which the contribution was made.
Temporary Waiver of Disaster Relief Statement Requirement
Corporations must meet the usual recordkeeping requirements that apply to charitable contributions, including obtaining a contemporaneous written acknowledgment (CWA) from the charity. The CWA must be obtained before the corporation files its return, but no later than the due date, including extensions, for filing that return.
The new law added an additional substantiation requirement for qualified contributions — a disaster relief statement that states the contribution was used, or is to be used, by the eligible charity for relief efforts in one or more qualified disaster areas.
However, recognizing that some corporations may have already obtained a CWA that lacks the disaster relief statement, the IRS will not challenge a corporation’s deduction of any qualified contribution made before February 1, 2021, solely on the grounds that the corporation’s CWA does not include the disaster relief statement.
If you are interested in making a corporate charitable contribution, our CRI advisors are here to help you do so in a way that meets all your goals.