Frogman
Level 3

@rjskal thanks for your reply and input. True, wording can be interpreted in many ways. I would still hold the position that the charitable contributions the 8995 flow chart instructs to include would be charitable contributions that are business expenses (again, affecting companies like benefit corporations). The sentence on the 8995 flowchart you are referring to begins with "Is the item from a trade or business?" As @itonewbie pointed out, §162 states that traditional charitable contributions are NOT a trade or business item. So the answer to that flowchart question for a typical company then, in my opinion, is no. The answer for a benefit corporation would be yes.

Also keep in mind the 8995 form is the second phase of reporting the item, to be reported on the shareholder's personal tax return, so the instructions there do not need to be as extensive as the 1120S flowchart instructions, which could explain why the word "may" was omitted in the 8995 flowchart. In other words, the rules are pretty cut and dry by that point. If the item is passed through to the shareholder by the S-Corp, the determination has already been made at the S-Corp level that it is an includable item, and should therefore be included on the personal return.

But at that first phase, if the S-Corp follows the 1120S flowchart instructions there, the charitable contribution figure would not even be passed through to the shareholder on the Schedule K-1 statement for him to report. The instructions at the S-Corp level specifically state to not include activities that are not engaged in for profit. A typical company does not contribute to charity for the purpose of gaining any profitable benefit, and therefore should not include it on the K-1 statement. Benefit corporations, on the other hand, would gain a benefit from their charitable contributions, in the form of goodwill, etc., so they would be one example of when charitable contributions would be included. This is why I believe the word "may" is used in the instructions at the S-Corp level, as there are situations where it may be included and situations where it may not be included.

Again, this is just my opinion. Would enjoy further discussion as well as input from others too. But it is the only conclusion that makes any sense, as there is no logical reason why traditional charitable contributions should reduce QBI.

0 Cheers