The IRS Enhanced donation

In 2000, Manon Ress wrote a memo for MSF on Tax Deductions for Pharmaceutical Drug Donations. These are the few notes about the enhanced donation rules, as they apply to drug donations.

The IRS has special provisions for “enhanced” donations. For such donations, the taxpayer is able to deduct the lesser of 50 percent of the fair market value of a donation, often associated with the retail price of a good, or twice the cost basis. For drug company donations, the donation should be “used by the donee solely for the care of the ill, the needy, or infants.” [26 USC 170 (e)(3)]

26 USC 170 (e)(3)(B) Amount of reduction
The reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be no greater than the sum of—
(i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i), but without regard to this clause) exceeds twice the basis of such property.

As Ress noted in 2000, often the average cost of goods, as reflected in company accounting, is often much higher than the incremental cost of the goods, and is particularly attractive for cases where goods are nearing their expiration date, or a company is seeking to avoid reductions in its prices or compulsory licenses that would benefit generic competitors. In some cases, US taxpayers pick up the tab for a type of differential or entry deterrent prices, and this is not among the worst outcomes. Health activists are more concerned about companies that donate products products that are near expiration, or unlikely be used appropriately, or for which the costs of administering the donation program are greater than the cost savings.

For more information:

  1. WHO drug donation guidelines
  2. Brook K Baker, Eva Ombaka, The danger of in-kind drug donations to the Global Fund, Lancet 2009; 373: 1218–21, Published Online, October 9, 2008, DOI:10.1016/S0140- 6736(08)61487-7
  3. Cristina P Pinheiro, Drug donations: what lies beneath, Bulletin of the World Health Organization, 1986.
  4. Ronald Fowler and Amy Henchey, IN-KIND CONTRIBUTIONS, 1994 EO CPE

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