The Internal Revenue Code provides that, except as otherwise provided by law, a tax is imposed on all income from whatever source derived. Several years ago, the Internal Revenue Service determined that, under certain tightly-defined parameters, an employee who donated leave to a bank which was available for use by other employees with medical emergencies generally did not realize any income. (In the normal course, the IRS would hold that this was no different than the employee getting cash for the leave and donating the cash, thus creating an income tax liability for the employee making the gift.)
Following the Hurricane Katrina catastrophe, the IRS established parameters under which an employer could establish a written major disaster leave-sharing plan. Like the tax code generally, this type of plan entails some significant IRS-imposed requirements, including that it is available only for a “major disaster as declared by the President under § 401 of the Stafford Act, 42 U.S.C. § 5170, that warrants individual assistance or individual and public assistance from the federal government under that Act.” In late May, President Bush issued a Stafford Act declaration with regard to certain storms, tornadoes and flooding in Iowa, and that declaration has been subsequently amended. While many of our clients have established a “disaster leave-sharing program,” we are concerned that other businesses may not be aware of the possibility.
The parameters established by the IRS for an acceptable plan (that is, one that will not result in income to the leave-donating employee) include that the donated leave may be used only by other employees who have been “adversely affected” (under the IRS standards, “if the disaster has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work”) by the major disaster. The IRS standards also require that the written plan have a “reasonable limit, based on the severity of the disaster, on the period of time after the major disaster occurs during which a leave donor may deposit the leave in the leave bank, and a leave recipient must use the leave received from the leave bank.”
Following Hurricane Katrina, the IRS also put in place a program under which employees could make a tax-deductible contribution to certain charities by making a donation of “leave” through a program sponsored by an employer. That program was specific to Hurricane Katrina, and has since lapsed.
If you have questions about creating or operating a "major disaster leave-sharing plan," a "medical emergency leave-sharing plan," or other arrangements whereby your employees may provide assistance, please contact the Dickinson attorney with whom you normally work or a member of the firm's Employment and Labor Law Practice Group at employmentlaw@dickinsonlaw.com.
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