Corporation’s Charitable Contributions on Behalf of Employees are Not Deductible Business ExpensesApril 26, 2016 – Articles Nonprofit Roundup Blog
In Private Letter Ruling 201616002, the IRS ruled that a corporation’s contributions to charities on behalf of the corporation’s employees are not deductible business expenses.
The contributions were made as part of a matching program. Under the matching program, if an employee contributed a certain amount to the corporation’s political action committee (PAC), the corporation would match the amount in the form of a charitable contribution. The charitable contribution would be made on behalf of the employee to a charity of the employee’s choosing.
The corporation sought to deduct the matching contributions as business expenses. Code Section 162 disallows deductions for amounts paid or incurred in connection with participation in any political campaign. The question at issue in this Private Letter Ruling was whether the link between the PAC contribution and the matching contributions was enough to taint the matching contributions, precluding the corporation from deducting the matching contributions as business expenses.
The IRS ruled that the matching contributions do not qualify as business expenses. Instead, the matching contributions are an incentive offered to employees to donate to the corporation’s PAC. The IRS reasoned that the link between the PAC contribution and the matching contribution meant that the matching contributions were made “in connection with” a political campaign. As such, the IRS ruled that the matching contributions were not deductible business expenses under Code Section 162.