Running Head: COR TAX ASSIGNMENT TWO
Cor Tax Assignment Two
Issue
Should a reduced FMV be applied considering that the food being donated stayed on the shelves for some days.
Facts
The Southwest Grocers is involved in the donation of a food inventory some days before its expiration day. The food that is being donated is edible while the inedible food is kept. The IRS disallowed the application of the reduced FMV considering that the food donated was at the shelves for some days.
Analysis
The Internal Revenue Code, 1361(a) (1); manufacturers of products are subject to print the “expiration date” on the products or containers. The products are not to be sold after the expiration date.
The Internal Revenue Code, 170 (e) (3) (A): states that the company selling the products is to make a substantial contribution.
Rev. Rul 85-8, 1985-1 C.B. at 59 addresses the matter on products being sold a few days before their expiration date. The products were sold by X for a value of $ 10x, the corporation known as X made a substantial contribution in reference to the section 170 (e) (3) (A). Looking at the company’s Federal income tax return, it wanted a reduction of 10x dollars for this contribution (Checkpoint, 2012). While being donated, if the company had sold the products in the normal market, which it was used to, the company X would have acquired its normal selling price for the products considering the imminence of the expiration date where it could have been purchased legally. The Company X basis for the products was 1x dollars.
It such a case, the ‘expiration date’ is relevant according to the law and the products could be sold lawfully after the expiration date. In this case, an expiration date was not legally needed as well as the missing of any legal hindrance on the basis of the expiration date. There is however hindrance that is posed by the Kwik Lok though it is done at a certain discount in the stores.
In the ruling, there is the assumption that the expiration date was forthcoming; “X could not reasonably have been expected to realize its usual selling price.” This case is similar to the bread donation considering that it is concerned with the donation of perishable products; food – the donations of food products a few days before its expiration date. Similar conclusive ruling is not necessarily being reached in this case.
Expert opinion of the value is given by Professor Daniel L. Rubinfeld, a teacher of law and economics in California. His reports offer an evaluation of the number behind the petitioner’s bread sold in the past two weeks in six stores. He concludes from his evaluation that if bread is just but some days old, the clients are uninterested in its age and will pay the whole price.
The enacting of section 170 (e) (3) is desired to encourage donations for the application through a few recipients. Part A of this section as quoted by the Conference Committee Report, the donation of food and other supplies for the sole objective of human consumption had gone bad considering the limitations presented by section 170 (e) (1). Section 3 is supposed to be acquired in a restrictive way so as to inhibit donations. Moreover, the congress brought forth section 170 (e) (3) (B) so as to hinder the instance where the citizen who pays tax would acquire an advantage through donating products and remain with all the earnings after being taxed. The petitioner is hence supposed to be valued at the whole price. At the trial, the petitioner objected directing it to revenue. The Court reserved its verdict to the acceptability of the objection. Later, the Court ruled that the objection is to be sustained.
Bibliography
Checkpoint. (2012). Lucky Stores Inc., et al v. Commissioner, 105 TC 420, Code Sec(s) 170. Tax Court & Board of Tax Appeals Reported Decisions.
