Hurricane Sandy: Favorable Rules for Leave-Based Charitable Donation Programs

In general, employees are taxed on compensation that they earn even if they assign it to someone else, and they can claim deductions for contributions to charity only if they itemize their deductions.  Also, the deduction available to C corporations for charitable contributions is generally less favorable than the deduction for business expenses, in that the charitable contributions deduction generally cannot exceed 10% of the corporation’s taxable income.

In Notice 2012-69, the Internal Revenue Service relaxed all of these general rules for leave-based charitable contribution programs to benefit victims of Hurricane Sandy.  Under such a program, employees would elect to forgo vacation, sick, or personal time in exchange for cash donations by their employer to a Section 170(c) tax-exempt charitable organization for the relief of victims of Sandy.  The following beneficial tax rules would apply:

  • The employee would not be taxed on the value of the forgone leave. (Under normal tax rules, the forgone leave would be taxable under either the constructive receipt doctrine or the assignment of income doctrine.)
  • The employer would be able to treat the contribution as a business expense, so that it would not be subject to the limitations applicable to charitable contributions.

The amounts must be paid before January 1, 2014 by the employer to the charity.  Also, the employee cannot claim a charitable deduction from the forgone leave.

Similar relief was temporarily provided following Hurricane Katrina and, before that, the September 11 terrorist attacks.

 

E. Drew Cheney Posted By
E. Drew Cheney