Tax Research

Tax Research Problem 3-73

James Bowen owns 100% of Bowen Corporation stock. Bowen is a calendar year, accrual method tax payer. During the current year, Bowen made three charitable contributions:

Donee | Property Donated | FMV of Property |

State University | Bates Corporation Stock | $110,000 |

Red Cross | Cash | 5,000 |

Girl Scouts | Pledge to pay cash | 25,000 |

Bowen purchased the Bates stock three years ago for $30,000. Bowen holds a 28% interest, which it accounts for under GAAP using the equity method of accounting. The current carrying value for the Bates stock for book purposes is $47,300. Bowen will pay the pledge to the Girl Scouts by check on March 3 of next year. Bowen’s taxable income for the current year before the charitable contributions deduction, dividends-received deduction, NOL deduction, and U.S. production activities deduction is $600,000. Your tax manager has asked you to prepare a memorandum explaining how these transactions are to be treated for tax purposes and for accounting purposes. Your manager has suggested that, at a minimum, you should consult the following resources:

* IRC Sec. 170

* Accounting Standards Codification (ASC) 720

Memorandum

To: Dr. Ulysses Taylor

From: Jessica Cain

Date: February 11, 2015

Subject: Tax treatment of charitable contributions

Internal revenue code section 170 and Accounting Standards Codification 720 were both used to answer some questions you may have about how James Bowen transactions will be treated. In both research topics it states various things that we should keep in mind when trying to figure out how to treat Mr. Bowen’s transactions.

IRC Sec. 170:

“(1) General rule

There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.

(2) Corporations on...