This report discusses the temporary change in the tax law governing charitable donations of food. Recent legislation expanded the existing tax incentive for firms that are C corporations to all businesses that donate food to charity. In response to the devastation from Hurricane Katrina, the Katrina Emergency Tax Relief Act of 2005 (KETRA, P.L. 109-73 ) was enacted. That legislation included a temporary expansion of the tax deduction for charitable contributions of food inventory. The law allowed all donors of wholesome food inventory to benefit from the enhanced deduction for donations made between August 28, 2005, and January 1, 2006. The Pension Protection Act of 2006 ( P.L. 109-280 ) extended the temporary expansion through January 1, 2008. The Emergency Economic Stabilization Act of 2008 ( H.R. 1424 ; P.L. 110-343 ), which was signed into law on Friday, October 3, 2008, retroactively extends the temporary expansion of eligible donors through December 31, 2009. In the 110 th Congress, the Good Samaritan Hunger Relief Tax Incentive Extension Act of 2007 ( S. 689 ) proposes to permanently extend and expand the charitable deduction for contributions of food inventory. H.R. 3976 proposes making the provision permanent. H.R. 3996 , the Temporary Tax Relief Act of 2007, and H.R. 6049 , the Renewable Energy and Job Creation Act of 2008, which were passed by the House, both include a provision to retroactively extend the temporary expansion of eligible donors through December 31, 2008, as do H.R. 3970 , the Tax Reduction and Reform Act of 2007; S. 3335 , the Jobs, Energy, Families, and Disaster Relief Act of 2008; and S. 3125 , the Energy Independence and Tax Relief Act of 2008. Proposals to retroactively extend the temporary expansion of eligible donors through December 31, 2009, have been made in S. 2886 , the Alternative Minimum Tax and Extenders Tax Relief Act of 2008; S. 3098 , also titled the Alternative Minimum Tax and Extenders Tax Relief Act of 2008; and S. 3322 and its companion H.R. 6587 , the Midwestern Disaster Tax Relief Act of 2008. H.R. 3628 , the Promoting Charitable Actions Act of 2007, proposes extension through 2011. Additionally, S. 1132 proposes to qualify Indian tribes as eligible recipients of tax deductible contributions of food inventory. S. 2420 , the Federal Food Donation Act of 2008, which became law in June 2008 ( P.L. 110-247 ), revised the Federal Acquisition Regulation to require certain contracts to private entities to include a clause that encourages the donation of food. Specifically, the law requires that all contracts above $25,000 for the provision, services, or sale of food in the United States, or for the lease or rental of Federal property to a private entity for events at which food is provided in the United States, shall include a clause that encourages the donation of excess, apparently wholesome food to nonprofit organizations that provide assistance to food-insecure people. The legislation does not address the tax treatment of those donations. A discussion of the tax treatment for contributions made by all types of businesses is provided. Generally, these contributions may be made only to certain types of nonprofit organizations, may be deductible for income tax purposes only up to specified limits, and may be in the form of either cash or property. The charitable contribution deduction is allowed only for the taxable year in which the contribution is made; any unpaid subscriptions or pledges are not deductible until actually fulfilled. Some of the more typical organizations to which contributions are deductible include churches, universities, schools, and hospitals, as well as many other public assistance charities (such as food pantries, soup kitchens, homeless shelters, etc). If a contribution is made to an individual, such as a homeless family living on the street, that contribution is not deductible even though actuated by charitable motives. In order to qualify as an organization to which contributions are deductible, the recipient must be organized or incorporated in the United States or in one of its possessions and certified as a charitable organization by the Internal Revenue Service. Contributions to foreign charitable organizations are not deductible. A donation, however, to an otherwise qualified organization is deductible even though some portion of the funds of such organization are used in foreign countries for charity. The deduction for contributions (either in cash or in property) made by corporations is limited to 10% of taxable income (computed with adjustments). The 10% cap was raised from 5% by the passage of the Economic Recovery Tax Act of 1981 . The legislative history of the 1981 Act indicates that Congress was hopeful that corporate charitable contributions would be stimulated by the increase in the cap. Although the deductible portion of any contribution by corporations may not exceed 10% of taxable income in any given year, if contributions exceed this limitation, the excess may be carried forward to future tax years. Corporations may carry over excess charitable contributions and compute tax as though the excess gifts were actually made in such subsequent years. Thus, when charitable contributions in one year exceed the limitation, a corporation might ultimately secure the full benefit (taxwise) of the contribution even though denied part of it in the year in which the contribution was initially made. The law allows that excess charitable contributions may be carried forward for a five-year period. This carryforward provision applies to both gifts of cash or property. In general, if a charitable contribution is made in the form of property, the basis for the charitable deduction is dependent on the type of taxpayer (i.e., individual or form of business entity), to whom the property is donated, and for what purpose the donated property is to be used. Corporate gifts of property that would generate capital gains if sold (e.g., stocks and bonds) are deductible by corporations at market value. However, gifts of depreciable property are deductible at the corporation's basis rather than fair market value. Thus, under current tax law, the deduction is reduced by previously taken depreciation. In the case of fully depreciated machinery and equipment, the allowable charitable contribution deduction would be zero. Under current tax law, C corporations are provided more favorable tax treatment of contributions of certain types of inventory and other ordinary-income property to specified charitable organizations. This provision is temporarily available to S corporations , partnerships, and sole proprietorships. Through 2007, all donors are allowed to deduct their cost plus one-half the difference between their cost and the market value of the donated goods. However, in no case may the deduction's value exceed twice the cost basis. This special tax inducement is provided for capital assets defined in Internal Revenue Code §1221(1) or (2). Thus, this provision allows very large corporations a bigger deduction for charitable contributions of qualified tangible personal property. For a donor to receive this enhanced deduction, the gift must be made to a "qualified" tax exempt organization. Further, the property must be "used by the donee solely for the care of the ill, the needy, or infants." The donee is not permitted to exchange what has been transferred for money, other property, or services. The donee must furnish the donor with a statement that it does not intend to transfer the donation and that it will be used for the care of the ill, the needy, or infants. If the property is subject to regulation by the Federal Food, Drug, and Cosmetic Act it must satisfy the requirements on the date of transfer and for 180 days prior thereto. The enhanced deduction for food is available only for food that qualifies as "apparently wholesome food." "Apparently wholesome food" is defined under the Katrina Emergency Tax Relief Act of 2005 (KETRA) as food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. In summary, current law provides that the charitable deduction for contributions of inventory and other property is as follows: The gift must be made to a U.S. charitable organization; There is a 10% limitation on the total amount a corporation can deduct as charitable contributions; Contributions made in excess of this limitation may be carried forward for the next five years; Special rules are available for gifts made by C corporations of tangible personal property (inventory) when donated to qualified charitable organizations for the care of the ill, the needy, or infants. It must be established that the fair market value of the product exceeds basis in order to use the enhanced deduction. As noted earlier in this report, current law provides an enhanced deduction for donations made by C Corporations of property, which includes food products, for the care of the ill, the needy, or infants. This enhanced deduction available for food products is used primarily by businesses for unsaleable products. The most frequent reasons for products not being sold at market are errors in labeling, merchandise that has been crushed or dented, or products that may be too close to the expiration date recommended for sale. There have been four parts to legislation proposing to change the tax law for donated food products, two of which were addressed in the 109 th Congress. Typically, the proposals would extend the enhanced deduction for food inventory to all taxpayers engaged in a trade or business. Secondly, the enhanced deduction would be available only for "apparently wholesome food" which is newly defined under some of the legislative proposals. Third, the determination of basis of the qualified contributions would be set as a percentage of the food's fair market value. Finally, some proposals have set the fair market value of donated foods to be the same price as similar food items sold by the taxpayer at the time of the contribution, or, in the recent past.