The food industry is an essential partner with food banks in ensuring that excess food is not wasted and that families struggling with high costs of living get the food they need to be healthy and successful. In 2002, Food for People distributed 1,400,483 pounds of food. Donations from the food industry were a significant portion of that total.

The food industry benefits in many ways from donations made to food banks. Quality food doesn't go to waste, and the costs of storage and disposal for excess food are reduced. Neighbors in need receive nutritious food that helps children learn and grow and adults work and stay healthy. Food donors receive community recognition by the food bank for their generosity.

Federal and state public policies further encourage food industry donations to food banks. This guide provides general information on three such policies that provide tax benefits and liability protections for food industry donors to food banks. Donors are advised to consult with their tax advisor and legal counsel in applying the appropriate deductions, credits, and liability provisions.

1. Federal Tax Deductions for Charitable Donations of Ordinary Income Property

The general rule since 1969 states that a taxpayer who contributes appreciated inventory or certain other ordinary income property is permitted a charitable deduction only for an amount equal to the taxpayer's basis in the contributed property, not its fair market value. Congress, in the 1976 Tax Reform Act, further refined the statute to allow corporate donors an increased deduction, under certain circumstances, for contributions of ordinary income property to a public charity or to a private operating foundation.

Under IRC Section 170 (e) (3), a corporation is entitled to a deduction with respect to a contribution to a public charity or to a private operating foundation of appreciated property described in IRC Section 1221 (1) and (2). That is, certain types of ordinary income property in an amount equal to:

A. The sum of one-half of the unrealized appreciation (market value minus cost equals appreciation) plus the taxpayer's cost, but

B. Not in excess of twice the cost of the contributed property as described in IRC Section 170 (e) (B)

2. State Tax Credit for Charitable Donation of Trucking

There is also a 50% tax credit for donations of trucking of agricultural product to food banks, through state legislation passed in 1996.

Section 23608 of the CA Revenue and Taxation Code:

(a) In the case of a taxpayer who transports any agricultural product donated in accordance with Chapter 5 (commencing with Section 58501) of part 1 of Division 21 of the Food and Agriculture Code for income years beginning on or after January 1, 1996, there shall be allowed as a credit against the "tax" (as defined by Section 23036), an amount equal to 50 percent of the transportation costs paid or incurred by the taxpayer in connection with the transportation of that donated agricultural product. (Agricultural product is not just fresh produce; it is defined as "any fowl, animal, vegetable, or other stuff, product, or article which is customary food.")

3. Liability Issues

The Bill Emerson Good Samaritan Food Donation Act of 1996 makes it easier to donate food and grocery products to non-profit organizations for distribution to needy individuals: