Business receives Donation from other Business - Taxable income?

[h0250722]

A multi member LLC received a donation from a corporation because of a Hurricane last year (IRS declared the area as disaster).

Is this taxable income to the recipient?

I know for individuals it would not be but I am not sure about the business.

[BobKamman]

Are any of the shareholders or their family members in the corporation related to any of the members of the LLC or their families?  Were any goods or services provided?  Does a member of the LLC claim to prefer WalMart parking lots but go on private jet and yacht trips with a friend at the corporation?  

[taxes96786]

Donations are generally gifts unless you find something in taxpayers situation that would change that.

[qbteachmt]

"I know for individuals it would not be but I am not sure about the business."

That's not correct.

For a business, even if a charity, it is income. For a business that is not a Not-for-profit, it is business income the same as usual. Grants from governmental entities (or passed through from them) that are earmarked for specific needs per some sort of legislation would be not taxable. Example: a county Health Department is given State funds from a Federal program, and they provided it to care providers for offsetting unexpected sanitation needs due to covid.

A business can give money to anyone. That doesn't make it a business expense for them, and that doesn't make it a donation to anyone, and that doesn't bypass how it is treated per the tax code. Using the word "donation" doesn't change reality.

Individuals that get money would have reportable income unless it falls in the gift rules. "Donors" cannot give money to individuals and call that donation as write off. It is donation, in other words, as terminology. Not as tax regulation construct.

Without more details, it seems likely this is reported as regular business income. It wouldn't be sales, and it would bypass sales taxes, though.

[h0250722]

no to any of your questions 😉

[BobKamman]

The gift would be considered as having been made to the individual members of the LLC.  They don't pay tax on gifts.  Corporations don't pay gift tax, but they are allowed a limited deduction.  

From IRS Pub 463:

If you give gifts in the course of your trade or business, you may be able to deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts.

$25 limit. 

You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.

If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule doesn’t apply if you have a bona fide, independent business connection with that family member and the gift isn’t intended for the customer's eventual use.

[qbteachmt]

"no to any of your questions"

You see why more details would be needed?

Giving money because of a hurricane doesn't explain why some corporation gives some money to some partnership. Example: A rich client wants to donate to a cause supported by an architectural firm, which has one of their principal partners on the board of an affordable housing not-for-profit, to help fund rebuilding and recovery of a group home for disabled residents.

In this example, the rich client issues the payment in the name of the NFP that handles the housing needs.