May 16, 2002 | Read Time: 1 minute
Businesses hurt by the September 11 attacks may deduct from their income taxes the gifts they receive from charities to help them recover, the IRS said in a letter to the American Bar Association.
The association wrote the IRS that some charities have already provided small and medium-size businesses with grants or below-market loans to help them recover after the attacks; it asked whether businesses could deduct that aid. The money was used for such purposes as helping to replace destroyed property, relocate to new office space, reconstruct business records, and meet payroll or other expenses.
In its response, the IRS said that businesses could treat such payments as gifts, but emphasized that charities must make sure the grants are used for such charitable purposes, and that the businesses need the grants.
In addition, the charity must make the gift with “donative intent” — that is, it must give the money with no expectation of a return benefit. Companies may not deduct payments from charities if they were made for services the business provided to the donating charities, the IRS said. And the money may be deducted only once. For example, a business may not deduct a gift as a charitable contribution on its income taxes and then try to claim it again as a business expense, the IRS said.
