Splash Corporation has $50,000 of taxable income before any charitable contribution deduction. Splash contributed $20,000 to a qualified charitable organization. Due to the 10% of taxable income limitation on charitable contribution deductions, Splash's contribution deduction is limited to $5,000. What effect does the charitable contribution have on current and future E&P?
What will be an ideal response?
Splash deducts the entire $20,000 in computing current E&P. Therefore, $15,000 must be deducted from taxable income of $45,000 ($50,000 - $5,000) to compute current E&P. In future years, when the $15,000 carryover is deducted in determining taxable income, it must be added to taxable income in arriving at current E&P.
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