Ag Policy Blog

Asking USDA to Buy for Food Banks and Tax Benefits of Donating Food

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Rather than risk vegetables rotting in fields, House Ag Chairman Collin Peterson is asking USDA to buy those products for food banks. (DTN file photo by Todd Neeley)

House Agriculture Committee Chairman Collin Peterson wrote Agriculture Secretary Sonny Perdue on Tuesday asking the Trump administration to buy as much agricultural commodities as possible for donations to hungry Americans while helping farmers manage through the pandemic.

“The pictures and video of milk being dumped and fresh vegetables being plowed into the ground is unsettling to most Americans, but it is heart breaking for those farm families that produced that commodity,” Peterson, D-Minn., said in a news release.

USDA buying those products can “help ensure that the production that no longer has a foodservice market can be made available to help our nation’s foodbanks.”

In the letter, Peterson urged USDA to use the $9.5 billion in funding through the CARES Act, as well as the authorities of the Commodity Credit Corporation (CCC), and Section 32.

“The agricultural economy was already in a fragile state from several years of adverse weather conditions and our challenging trade situation. Despite being an essential service, our ag producers and their supply chain partners are facing the total loss of some market segments and the inability to quickly change their marketing and processing capabilities to meet the new realities,” added Peterson.

The full letter can be found here.

https://agriculture.house.gov/…

Tax Deductions for Food Donations

DTN was also asked what are the possible tax benefits for farmers donating produce or other commodities to food banks.

Rod Mauszycki, a principal in the Agribusiness division of CliftonLarsonAllen, highlighted the tax benefits of donating "apparently wholesome food" to a food bank.

The term “apparently wholesome food” relates to food that meets all qualify and labeling standards imposed by federal, state, and local laws and regulations… even though the food may not be readily marketable due to age, freshness, grade, size, surplus or other conditions. The food must be donated to charitable organization and the charitable organization must use the donated food in furtherance of its purpose or function.

Generally a deduction for contributions to a charitable organization is limited by basis. Under IRC 170(e)(3), the deduction is limited to the lower of (1) basis plus one-half of Fair Market Value (FMV), or (2) twice the basis of the inventory. As it relates to farms, most farmers are on cash basis and expense the costs of growing food. They have no basis in the donated food. However, if the farmer does not account for inventory, he may elect to treat the basis of the food inventory equal to 25% of FMV. This would allow the farmer to claim a deduction for 50% of FMV of the donated food.

The deduction can’t exceed 15% of the taxpayer’s aggregate net income from all trades or businesses from which the contribution was made. However, under the CARES Act this was increased to 25% for 2020.

That was the nuts and bolts of Mauszycki's breakdown. Congress could probably boost the tax incentive for farmers donating food to food banks during a crisis like a pandemic. How, do you say? Well, there's likely going to be another aid package. Congress had the forethought in the CARES Act to add a $90 billion provision that largely benefits wealthier business owners with pass-through entities -- at least 80% of the benefit will go to wealthier Americans to deduct non-business income. As the Washington Post reported Tuesday, https://www.washingtonpost.com/…

So, surely Congress can boost the tax benefits of food donations next time around. Right guys?

Chris Clayton be reached at Chris.Clayton@DTN

Follow him on Twitter @ChrisClaytonDTN

(CZ\SK)

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