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IRS Provides Employment Tax Guidance for Leave-Based Donation Programs Related to Ebola Outbreak in West Africa

IRS Provides Employment Tax Guidance for Leave-Based Donation Programs Related to Ebola Outbreak in West Africa

On October 29, the Internal Revenue Service (“IRS”) issued two notices in response to the need for charitable and other relief due to the Ebola Virus Disease (“EVD”) outbreak. IRS Notice 2014-68 provides guidance on the employment tax treatment of leave-based donation programs to aid victims who have suffered from the EVD outbreak in West Africa. IRS Notice 2014-65 designated the EVD outbreak in West Africa as a qualified disaster for federal tax purposes.

There have been more than 4,800 EVD related deaths and more than 9,900 suspected and confirmed cases of EVD reported by Guinea, Liberia and Sierra Leone as of October 22, 2014. The EVD outbreak in West Africa was deemed by President Obama as a public health emergency, a humanitarian crisis, and a national security priority, and has directed U.S. agencies and departments to assist West African governments in their responses.

IRS Notice 2014-68

Under the leave-based donation program guidance included in IRS Notice 2014-68, employees may elect to donate their vacation, sick or personal leave in exchange for cash payments made to qualified tax-exempt organizations for the relief of victims of the EVD outbreak in Guinea, Liberia, and Sierra Leone. Employees’ vacation, sick or personal leave in exchange for employer cash payments made before January 1, 2016 to relief victims of the EVD outbreak will not constitute gross income or wages to the employees. Accordingly, electing employees may not claim a charitable contribution deduction with respect to the value of forgone leave excluded from compensation and wages.

IRS Notice 2014-68 provides that, “The Service will not assert that cash payments an employer makes to §170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are: (1) made to the §170(c) organizations for the relief of victims of the EVD outbreak in Guinea, Liberia, and Sierra Leone; and (2) paid to the § 170(c) organizations before January 1, 2016.”

IRS Notice 2014-65

The Commissioner of Internal Revenue has classified the EVD outbreak in Guinea, Liberia, and Sierra Leone as an event of a catastrophic nature under Internal Revenue Code (“IRC”) §139(c)(3) and deemed it to be a qualified disaster. The qualified disaster guidance outlined in IRS Notice 2014-65 allows recipients of qualified relief payments related to the EVD outbreak to exclude those payments from income on their tax returns. Qualified relief payments include amounts received to cover necessary personal, family, living or other qualified expenses that were not covered by insurance.

As discussed in IRS Notice 2014-65, IRC §139(a) provides that gross income shall not include any amount received by an individual as a qualified disaster relief payment. Additionally, IRC §139(b) provides that a qualified disaster relief payment includes any amount paid to or for the benefit of an individual (1) to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses (not otherwise compensated for by insurance or otherwise) incurred as a result of a qualified disaster, or (2) to reimburse or pay reasonable and necessary expenses (not otherwise compensated for by insurance or otherwise) incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster.

Click to View IRS Notice 2014-68

Click to View IRS Notice 2014-65

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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.

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