TPA 5700.01 – Income Tax Accounting for Contributions to Certain
Nonprofit Scholarship Funding Organizations
Inquiry—A state’s corporate income taxpayers are allowed a credit against their
state corporate income tax of 100 percent of eligible contributions made during the
year to a nonprofit scholarship funding organization. Unused credits may be
carried forward up to three years. The taxpayer may not convey, assign, or
transfer the credit to another entity unless all of the assets of the taxpayer are
conveyed, assigned, or transferred in the same transaction.
Should corporate income taxpayers report contributions that qualify for the tax
credit as contributions or as income tax expense in income statements prepared in
accordance with generally accepted accounting principles?
Reply—Corporate income taxpayers should report such contributions as
contributions in their income statements in accordance with FASB Statement No.
116, Accounting for Contributions Received and Contributions Made.
Such contributions meet the definition of a contribution in FASB Statement No.
116. Just as the federal government offering a tax deduction for such a
contribution does not change the nonreciprocal nature of the gift, the fact that the
state provides a dollar-for-dollar tax credit to the donor for its remittance to the
scholarship funding organization does not change the nonreciprocal nature of the
gift. Nor does having only the alternative of paying a corresponding, higher tax
make the contribution involuntary.
FASB Statement No. 109, Accounting for Income Taxes, provides that total
income tax expense or benefit for the year is the sum of deferred tax expense or
benefit and income taxes currently payable or refundable.
$100 contribution to qualified scholarship funding organization
$5,000 federal taxable income (includes $100 charitable contribution deduction)
Tax rate – 5.5%
State Tax Computation:
Federal taxable income $5,000
State taxable income 5,100
Tax rate 0.055
Pre-credit state income tax 275
Tax credit (100)
State income taxes payable $175
Journal entries made during the year should achieve the following result:
Dr. Contributions 100
Cr. Cash 100
To record contribution to scholarship fund
Dr. Income tax expense 175
Cr. State income taxes payable 175
To record state income tax expense