AAP on the Hill / Issues: Tax Issues

Improved Charitable Deduction for Contributions of Book Inventories Sails through the U.S. Senate

On April 9, before adjourning for a two-week recess, the U.S. Senate passed the Charity Aid, Recovery, and Empowerment (CARE) Act by a 95-5 vote. The CARE Act (S.476) is a bipartisan, compromise version of President Bush’s Faith-based and Community Initiative. In addition to the Initiative, the legislation as passed includes a number of amendments to stimulate donations to charitable organizations that are currently struggling with a decline in contributions coupled with a growing demand for services. One such provision included in the CARE Act was the Contributions of Book Inventory Amendment, sponsored by Senator Orrin Hatch (R-UT). The Amendment was originally introduced as a stand-alone bill (S.680) and enhances the charitable tax deduction incentives for book publishers to contribute excess book inventory to educational organizations, public libraries and literacy programs. During the previous Congress, Senator Hatch made sure that a similar provision was included in the Senate-passed version of the Administration’s major tax legislation, the RELIEF Act of 2001, but it was dropped from the final version of the tax legislation that the President signed into law. AAP staff worked with Senator Hatch’s staff to improve that version of the inventory contributions provisions, and several of the issues raised by AAP resulted in changes in the amendment as introduced and passed in the current Congress. Under current law, a charitable tax deduction for donation of a taxpayer’s inventory is limited to the taxpayer’s basis (cost) in the inventory. However, a taxpayer may be eligible for an enhanced deduction, which is equal to the lesser of (1) the basis plus one-half of an item’s appreciated value or (2) two times the basis, if the items donated are to be used “solely for the care of the ill, the needy, or infants.” Unfortunately, book publishers are often prohibited from receiving an enhanced deduction for charitable contributions of their book inventories because of the requirement that the donation be used solely for the care of the ill, the needy, or infants rather than that it be made to charitable organizations that can use the books. Under the revised Senate-passed amendment, a special rule is carved out for book publishers to receive an enhanced deduction for charitable contributions of their book inventories to schools, libraries, and literacy programs for educational purposes. For qualified book contributions, the ceiling on the enhanced deduction for book publishers is the amount by which the fair market value of the contributed materials exceeds twice the taxpayer’s basis in the materials. A “qualified book contribution” refers to a charitable contribution of books to: (1) an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on (schools); (2) a public library; or, (3) a 501(c)(3) entity that is organized primarily to make books available to the general public at no cost or to operate a literacy program. “Fair market value” is determined by reference to a “bona fide published market price” as determined (1) using the same printing and edition; (2) in the usual market in which the book is customarily sold by the taxpayer; and (3) by the validity of the taxpayer’s showing that the taxpayer customarily sold such books in arm’s length transactions within 7 years preceding the contribution. In practical terms, this means that the “bona fide published market price” for contributed books cannot be based on the price from the publisher’s own price list or catalogue, but instead must be an independently verifiable reference to actual sales of those books. Under the amendment, the donee organization must (1) use the books consistent with their exempt purpose; (2) not transfer the books in exchange for money, other property, or services; and (3) certify in writing both that the donated books are suitable, in terms of currency, content and quantity, for use in the organization’s educational programs, and that the books will be used in such educational programs. Although similar legislation has yet to be introduced or discussed on the House side, AAP is hopeful that the language will stay in the CARE Act as it continues to move through the legislative process.

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For more information contact:

Gloria Romanelli
Ph: 202-220-4542
Email: gromanelli@publishers.org