Attorney General Opinion; Charitable deductions
Topic Code: C091 Charitable Activity - Contributions (I) Document Reference:
Iowa Attorney General OpinionsiowaagTAXATION:Deductions from Income Tax — Ch. 422, Code of Iowa, 1966. (1) The reasonable value of services donated to the State of Iowa by any person is not deductible from the net income of individuals. (2) The deduction of the reasonable value of equipment, supplies, etc., donated to the State of Iowa or subdivisions thereof by an individual is authorized by § 422.9, Code of Iowa, 1966, and by the Federal Internal Revenue Code and the interpretations thereof. (3) Such deductions claimed by corporations as donations is controlled by § 422.35, Code of Iowa, 1966, and by the Federal Internal Revenue Code of 1954. (4) Partnerships are required to file an information tax return as provided by § 422.15, Code of Iowa, 1966, and deductions of partnerships are not required to be exhibited in such returns, however, the partners may take allowable individual deductions on their individual tax returns. (Murray to Maricle, Director, Iowa Civil Defense Division, 4/20/70) #70-4-15 Mr. Albert R. Maricle, Director, Iowa Civil Defense Division:We have your request for an opinion wherein you submitted the following: "Discussion: A person, firm or corporation offers to the state, or to any political subdivision thereof, services, equipment, supplies, material or funds by way of gift or grant, and the state, or political subdivision thereof, acting through its Executive Officer or governing body, accepts such services, equipment, supplies, material or funds on behalf of the state or political subdivision thereof, as the case may be. "Question: Is the reasonable cost of such services, equipment, supplies, material or funds donated (by way of gift or grant) by any person, firm or corporation to the state or political subdivision thereof an authorized deduction of income reported on the Iowa income tax form submitted by the donee." In reply thereto, I advise the following: The foregoing situation involves a question arising out of the Iowa Income Tax Statute, Chapter 422, Code of Iowa, 1966. Deduction from the net income of an individual is authorized under the provisions of § 422.9, Code of Iowa, 1966. Subsection 2 of which is pertinent to this section provides the following: "In computing taxable income of individuals, there shall be deducted from net income the larger of the following amounts: "2. The total of contributions, interest, taxes, medical expenses, childcare expense, losses and miscellaneous expenses deductible for federal income tax purposes under the Internal Revenue Code of 1954, with the following adjustments:"a. Subtract the deduction for Iowa income taxes.
"b. Add the amount of federal income taxes paid or accrued as the case may be, during the tax year, adjusted by any federal income tax refunds. Provided, however, that where married persons, who have filed a joint federal income tax return, file separately, such total shall be divided between them according to the portion thereof paid or accrued, as the case may be, by each; and provided further that where a taxpayer has used an optional standard deduction on his federal return, he shall use the optional standard deduction provided for above."
Applying the foregoing formula to claimed deductions by individuals, I advise:1. In reference to paragraph two above under the Internal Revenue Code of 1954 the most current regulation thereunder, Reg. § 1.170-2(a) (2), states in part as follows:
"No deduction is allowable for contribution of services. However, unreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible may constitute a deductible contribution.... Similarly, out-of-pocket transportation expenses necessarily incurred in rendering donated services are deductible. "Reasonable expenditures for meals and lodging necessarily incurred while away from home in the course of rendering donated services also are deductible."2. As far as the deductibility of the cost of equipment, supplies, material, etc. donated by an individual to the State or a subdivision thereof, the formula thereof is provided by the foregoing statute, § 422.9, Code of Iowa, 1966. Such claimed deduction is not controlled by any general rule of law, but the deductibility of each such claim is controlled by the Federal Internal Revenue Code and interpretations thereof. Lacking any general rule, such claims for such deductions are determined when and as they are submitted to the Iowa Income Tax Division in their income tax returns.
3. Such deductions claimed by corporations to the State or a subdivision thereof are controlled by § 422.35, Code of Iowa, 1966 which provides:
"The term 'net income' means the taxable income less the net operating loss deduction, both as properly computed for federal income tax purposes under the Internal Revenue Code of 1954, with the following adjustments:" Such adjustments aggregate five subsections. Subsection 1, 2, 4 and the following part of subsection 5 have general application to such returns, appears following: "1. Subtract interest and dividends from federal securities. "2. Add interest and dividends from foreign securities and from securities of state and other political subdivisions exempt from federal income tax under the Internal Revenue Code of 1954. "4. Subtract federal income taxes paid or accrued, as the case may be, during the tax year, adjusted by any federal income tax refunds; and add the Iowa income tax deducted in computing said taxable income. "Provided, however, that a corporation affected by the allocation provisions of section 422.33 shall be permitted to deduct only such portion of the deductions for net operating loss and federal income taxes as is fairly and equitably allocable to Iowa, under rules and regulations prescribed by the state tax commission."4. As far as partnerships are concerned, they are required to file an information tax return see § 422.15, Code of Iowa, 1966, and there is no specific authority requiring claimed deductions of partnerships to be exhibited in such return. The Internal Revenue Code, § 702 and Reg. § 1.702-1(a) (4), is substantially the same as the Iowa statute referred to above. A partnership is not a taxable entity. Only the partners are taxable in their individual capacities. Each partner shall take into account as part of the contributions paid by him, his distributive share of each class of charitable contributions paid by the partnership within the partnership taxable year.