![]() ![]() Ĭourts have found repeatedly that the consideration or other return benefit in exchange for a payment is what determines whether a payment is deductible as a business expense or as a charitable contribution. The transit company has a reasonable expectation that the convention would augment the company’s income because the company expects a greater number of people to use its transportation facilities as a result of the convention. This two-part test is illustrated by the following example: A transit company donates money to an organization intending to hold a convention in the city in which the transit company operates. are “made with a reasonable expectation of financial return commensurate with the amount of the transfer.”.“bear a direct relationship to the taxpayer’s trade or business” and.Payments are deductible as business expenses under Section 162 rather than as charitable contributions under Section 170 if they Under Section 162(a), corporations may deduct “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” These include payments for “‘good will’ advertising which keeps the taxpayer’s name before the public” if the payments “are related to the patronage the taxpayer might reasonably expect in the future.” īusiness expense deductions are not allowed for payments that would be deductible as charitable contributions under Section 170. A significant tax issue is whether payments by a taxable corporation to charitable organizations are deductible as charitable contributions under Section 170 (with the 10% limitation), or as business expenses under Section 162 (which is not limited). Typically, benefit corporations have shareholders, although the corporate form depends on the law of the state of jurisdiction.įor federal income tax purposes, a benefit corporation is treated the same as other taxable corporations, including the tax treatment of payments to charitable organizations. Many benefit corporations are also certified “B Corps,” a certification that B Lab issues to companies that meet various social sustainability and environmental performance standards as well as accountability and transparency standards. They are also generally required to have a high degree of transparency. ![]() Importantly, the directors of benefit corporations are allowed to consider not only the profit-maximizing interests of their shareholders, but also the public benefit the corporation seeks to generate. ![]() Benefit corporations are taxable like other for-profit corporations. The General Information Letter addresses a benefit corporation, which is a type of corporate entity-available in an increasing number of states-explicitly authorized to pursue financial returns while at the same time generating a material positive impact on society and/or the environment (i.e., a public benefit). This clarification is particularly important for benefit corporations, certified “B Corps,” taxable nonstock corporations, low-profit limited liability corporations (元Cs), and other business entities that benefit the public as a means of generating goodwill for their businesses, because such organizations may desire to make payments to charitable organizations in excess of the 10% limitation on corporate charitable contributions. On June 2, 2016, the IRS issued General Information Letter 2016-0063, which clarifies the tax treatment of a benefit corporation’s payments to charitable organizations. In a General Information Letter addressing the tax treatment of benefit corporations, the Internal Revenue Service (IRS) stated that a taxable benefit corporation may deduct payments to charities as business expenses (and thus not subject to the 10% limitation on corporate charitable contributions) when the payments are for institutional or goodwill advertising to keep the corporation’s name before the public.
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