Which businesses can claim the enhanced deduction for donated food?

Under 26 U.S.C. 170(e)(3)(C), the enhanced rule for food inventory applies to a charitable contribution of food from any trade or business of the taxpayer, without regard to whether the business is a C corporation, and only to apparently wholesome food. IRS Publication 526 applies it to sole proprietorships, partnerships, S corporations and other businesses as well as C corporations. Other conditions apply, including the recipient's use of the food and a written statement from the recipient.

How is the enhanced food donation deduction calculated?

In general terms, the statute limits the usual inventory reduction so that the deduction works out to the smaller of the food's basis plus one-half of its appreciation (fair market value minus basis), or twice its basis, and never more than fair market value. If there is no appreciation, the deduction is fair market value. IRS Publication 526 has a Food Inventory worksheet, and a business that does not account for inventories under section 471 and is not required to capitalize indirect costs under section 263A may elect to treat basis as 25 percent of fair market value for this purpose. A tax professional should do the calculation.

Is there an income limit on the food inventory deduction?

Yes. For a taxpayer other than a C corporation, the aggregate food inventory contributions taken into account for a year cannot exceed 15 percent of the taxpayer's aggregate net income for that year from all trades or businesses from which the contributions were made, computed without regard to section 170. For a C corporation the limit is 15 percent of taxable income as defined in section 170(b)(2)(D). Excess contributions can be carried over for up to 5 succeeding years.

What must a food rescue give a business donor for the enhanced deduction?

Section 170(e)(3)(A)(iii) requires the donor to receive from the charity a written statement representing that its use and disposition of the food will be related to its exempt purpose and solely for the care of the ill, the needy or infants, and that the food will not be transferred in exchange for money, other property or services. Separately, for any single contribution of $250 or more, IRS Publication 1771 says the donor needs a contemporaneous written acknowledgment stating the organization's name, a description but not the value of non-cash property, and whether any goods or services were provided in return.

Does PantryPOS give tax advice or value donated food?

No. PantryPOS records donations by donor, date, category and weight and produces year-end acknowledgment letters that describe gifts without a dollar value. It does not value food, calculate deductions or give tax advice, and the section 170(e)(3) statement is not on its letters by default. A 501(c)(3) organization that has entered its EIN can choose to turn on an optional section 170(e)(3) statement on its letters; the organization makes that statement and is responsible for it being true. Donors should talk to a tax professional.

Guides / Food donation tax deduction

The Food Donation Tax Deduction: Explaining IRC 170(e)(3) to Your Business Donors

Updated October 2026 · sources checked October 10, 2026 · not tax advice

When a food rescue asks a grocery store, restaurant, farm or distributor to donate, the second question after liability (see the Good Samaritan Food Donation Act) is usually “can we deduct it?” Federal tax law has a specific, more generous rule for donated food inventory in Internal Revenue Code §170(e)(3). This guide explains its shape so you can point donors in the right direction and know what your organization is being asked to sign. It is not tax advice: PantryPOS does not give tax advice, and your donors should talk to a tax professional about their own situation.

Why food gets a special rule

Ordinarily, when a business donates inventory, §170(e)(1)(A) reduces the deduction by the gain that would not have been long-term capital gain if the property had been sold — which in practice tends to hold an inventory gift to its cost. IRS Publication 526 puts it this way: for inventory that was in opening inventory for the year, the deduction is the smaller of its fair market value on the day it was contributed or its basis. Section 170(e)(3) limits that reduction for qualifying gifts to charities that use them to care for the ill, the needy or infants, and §170(e)(3)(C) extends the rule to food from any trade or business.

Who qualifies

The donor: any trade or business donating food. §170(e)(3)(C)(i) says that for “a charitable contribution of food from any trade or business of the taxpayer” the rule applies “without regard to whether the contribution is made by a C corporation.” IRS Publication 526’s Food Inventory worksheet is written for sole proprietorships, S corporations, partnerships and other businesses that are not C corporations; C corporations qualify too.
The food: apparently wholesome food. The term borrows the definition in the Bill Emerson Good Samaritan Food Donation Act (§170(e)(3)(C)(vi)): food meeting all federal, state and local quality and labeling standards even though it may not be readily marketable because of appearance, age, freshness, grade, size, surplus or other conditions. Food regulated under the Federal Food, Drug, and Cosmetic Act must also satisfy that Act’s requirements on the date of transfer and for the previous 180 days (§170(e)(3)(A)(iv)).
The recipient: a 501(c)(3) organization. The donee must be an organization described in section 501(c)(3) and exempt under 501(a), other than a private foundation that is not an operating foundation (§170(e)(3)(A)). If your food rescue runs as a program of another organization or under a fiscal sponsor, ask your accountant which entity is the donee.

What the charity must certify

The enhanced rule applies only if (§170(e)(3)(A)):

the charity’s use of the food is related to the purpose or function that is the basis for its exemption, and the food is to be used solely for the care of the ill, the needy, or infants;
the food is not transferred by the charity in exchange for money, other property, or services; and
the donor receives from the charity a written statement representing that its use and disposition of the food will follow (1) and (2).

That written statement is something your organization signs, so make sure it is true of how you operate. Two practical points:

Fees and reduced prices. Since 2023 the Good Samaritan Act protects distribution at a “good Samaritan reduced price”, but the tax rule asks whether the charity transfers the food in exchange for money. If your program or a partner charges recipients or agencies anything, talk to a tax professional before signing donors’ statements.
Partner agencies. If you pass food on to other organizations, know how they use it, since your statement covers the food’s use and disposition.

The basic formula

Under §170(e)(3)(B), the usual reduction is limited to no more than one-half of the food’s appreciation (fair market value minus basis), plus any amount by which the resulting deduction would exceed twice the basis. Worked through, that gives a deduction equal to the smaller of:

the food’s basis plus one-half of its appreciation, or
twice its basis,

and never more than its fair market value; if fair market value does not exceed basis, the deduction is fair market value. IRS Publication 526 sets this out as a step-by-step worksheet (“Worksheet 1. Donations of Food Inventory”). Two details from the statute and Publication 526 that donors often ask about:

Basis election. A business that does not account for inventories under §471 and is not required to capitalize indirect costs under §263A may elect to treat the basis of apparently wholesome food as 25 percent of its fair market value, solely for this calculation (§170(e)(3)(C)(iv)).
Fair market value. Where food cannot or will not be sold solely because of the donor’s internal standards, lack of market or similar circumstances, or was produced only to be donated, fair market value is figured without regard to those reasons, taking into account the price at which the donor sells the same or substantially the same food at the time of the contribution, or in the recent past (§170(e)(3)(C)(v)).

Valuing the food and doing this calculation is the donor’s job, with their tax professional. Your organization does not put a value on it.

The income limit

§170(e)(3)(C)(ii) caps the food inventory contributions a donor can take into account in a year:

Any taxpayer other than a C corporation: 15 percent of the taxpayer’s aggregate net income for the year from all trades or businesses from which the contributions were made, computed without regard to §170.
C corporations: 15 percent of taxable income as defined in §170(b)(2)(D), coordinated with the overall corporate charitable limit.

Any excess is carried over and treated as a food inventory contribution in each of the 5 succeeding taxable years, in order (§170(e)(3)(C)(iii)).

The written acknowledgment: what your receipt must say

Separately from the §170(e)(3) statement, the general substantiation rules apply. For any single contribution of $250 or more, IRS Publication 1771 and the IRS’s written acknowledgment page say the donor needs a contemporaneous written acknowledgment from the charity containing:

the name of the organization;
the amount of any cash contribution;
a description (but not the value) of any non-cash contribution, such as donated food;
a statement that no goods or services were provided in return, if that is the case, or a description and good faith estimate of the value of any that were.

One annual summary can cover several gifts, and letters, email or computer-generated forms are acceptable. To be contemporaneous, the donor must receive it by the earlier of the date they file their return for the year or the return’s due date, including extensions (Publication 1771). More on this, including the donor’s own Form 8283 filing: can a food pantry give donors a tax receipt? A free donation receipt template (print or Word) includes these elements and an optional §170(e)(3) statement.

Where PantryPOS fits

PantryPOS does not give tax advice, value donated food or calculate anyone’s deduction. What it does keep is the record a business donor and their accountant will ask you for:

Donor records with name, address, phone and email.
Every donation by donor, date, category and pounds, logged on the Receive screen with a source (for example donated, food drive or grocery rescue), delivery temperature, package condition and lot record.
Pounds by source and category in the reports, and a receiving CSV export for any date range that you can total by donor.
Year-end acknowledgment letters on the Donors & tax letters screen, printed or emailed. Each letter lists the donor’s gifts by date with a description and approximate pounds, states that no goods or services were provided in exchange, and assigns no dollar value. If you tick the setting saying your organization holds its own 501(c)(3) exemption, the letter states it with your EIN. You choose which sources count as gifts: by default only “donated” and “food drive”, so add grocery rescue if those pickups are gifts to you. Government and food bank sources are left out by default.

The §170(e)(3) statement is an option you turn on, and it is off by default. In the letter settings, an organization that has ticked the 501(c)(3) box and entered its EIN can tick “Include the §170(e)(3) food-donation statement for business donors”. Its letters then add a titled statement, in your organization’s name, that tracks §170(e)(3)(A): that you are an organization described in section 501(c)(3) and exempt under 501(a), other than a private foundation that is not an operating foundation; that your use of the food is related to your exempt purpose and is solely for the care of the ill, the needy or infants; and that you will not transfer the food in exchange for money, other property or services. It also says you assign no value to the food and that the donor should consult a tax professional. Without the 501(c)(3) box and an EIN the statement never prints. PantryPOS does not check whether it is true: your organization signs it, so turn it on only if it describes how you actually operate, and ask your accountant if you are unsure. See also food rescue software and, for grocery rescue reported to a Feeding America food bank, MealConnect grocery rescue receipts. PantryPOS is $39 a month for the first location after a 30-day free trial, with no card to start.

Sources (checked October 10, 2026)

26 U.S.C. §170(e)(1), (e)(3) and (e)(3)(C), Cornell LII copy of the U.S. Code; official text at uscode.house.gov.
IRS, Publication 526 (2025), Charitable Contributions — “Inventory” and “Food Inventory”, including Worksheet 1.
IRS, Publication 1771 (Rev. 11-2023), Charitable Contributions – Substantiation and Disclosure Requirements.
IRS, Charitable contributions: Written acknowledgments.

This guide summarizes the Internal Revenue Code and IRS publications as published on October 10, 2026, for food rescue organizations explaining the rule to donors. It is not tax or legal advice, and PantryPOS does not give tax advice. Tax law changes; whether and how much a business can deduct depends on its own facts. Donors should talk to a tax professional.

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