UBTI Update – 990T Charitable Deductions for Disaster Relief

UBTI Update: 990-T Charitable Deductions for Disaster Relief

March 16, 2018

In September 2017, following the string of devastating hurricanes (Harvey, Irma and Maria), Congress enacted legislation addressing disaster relief. One of the provisions in the Disaster Tax Relief and Airport and Airway Extension Act of 2017 is a temporary lifting of the income percentage limitations normally applicable to charitable deductions for individuals and corporations. This special deduction applies only to cash grants made between August 23, 2017 and December 31, 2017 in support of relief efforts for hurricanes Harvey, Irma and Maria. Contributions to supporting organizations and donor advised funds do not qualify for this special treatment. A written contemporaneous acknowledgement from the recipient charitable organization indicating that the funds will be used for disaster relief efforts is required in addition to an election on the donor’s tax return indicating that section 504(a) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 applies to these disaster relief grants.

Tax-exempt organizations filing Form 990-T for 2017 may be able to reduce or fully offset their taxable income by the amount of qualifying disaster relief grants in excess of the normal limitation rules. For example, if a private foundation (corporation) had $100,000 of net UBTI, made non-disaster grants of $50,000 and qualifying disaster relief grants also of $50,000 for 2017. The $100,000 of income is first reduced by the normal 10% charitable deduction applicable to corporations (100,000 – 10,000 = 90,000). Next the qualifying disaster relief grants reduce the remaining taxable income, but not below zero (90,000 – 50,000 = 40,000). In this example, the private foundation has reduced taxable income by $50,000 for the disaster relief grants and will carryforward $40,000 of the non-disaster grants that were limited in 2017.

The special deduction was extended by the Bipartisan Budget Act of 2018 to apply to contributions in support of relief efforts for the California wildfires made between October 8, 2017 and December 31, 2018.