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IRS Announces Federal Income Tax Developments Related to the West African Ebola Outbreak

11.04.14

In recognizing the serious humanitarian crisis and potential health ramifications to the population of the United States and the World, the IRS announced on Thursday, October 29, 2014, in a pair of Notices that the Ebola outbreak occurring in the Western Africa countries of Guinea, Liberia, and Sierra Leone is a qualified disaster for certain purposes of the Internal Revenue Code. Informal conversation with the IRS Office of Chief Counsel has confirmed an intended broad application of the disaster relief.

Leave-Based Donation Program

The IRS announced that employers could adopt a leave-based donation program in which employees elect to forego vacation, sick, or personal leave in exchange for their employer making cash payments before January 1, 2016, to qualified charities which provide relief to victims of the qualified disaster with the following results:

  1. The employees foregoing vacation, sick, personal and other leave time will not recognize income for the amount of the payments for such foregone leave time;
     
  2. The employer can deduct the payments to the qualified charities for use in assistance to victims of the qualified disaster as a business expense; and
     
  3. Individual recipients of qualified disaster relief payments will not have U.S. taxable income.

The fact that the qualified disaster appears to be defined as the Ebola outbreak occurring in the three countries opens the possibility that the victims do not have to have physically contracted Ebola in those countries but rather potentially could have contracted the disease in the United States or elsewhere from people who had been in those countries. Informal conversation with the IRS Office of Chief Counsel confirms that victims of the Ebola outbreak in those countries include people who have never been in those countries, but who have been infected by Ebola from those countries. Therefore, funds could be used for assistance of qualified victims regardless of where they contracted the West Africa Ebola or their location during treatment and recovery. Thus, for example, a doctor or nurse and his or her family who contracted Ebola assisting patients in one of the three countries could receive assistance while receiving treatment and recovering in the United States and persons who contract Ebola from such persons while in the United States or elsewhere are eligible for assistance .

Employee Disaster Relief Fund

In addition, interested employers may establish a qualified Employee Disaster Relief Fund to provide qualified disaster relief assistance to employees and their immediate families who have contracted Ebola or are victims of other qualified disasters. Contributions to such relief funds by employers, employees and other donors are tax deductible.

Employer-Sponsored Private Foundation

Finally, employer-sponsored private foundations may choose to provide relief to employees who are victims of the Ebola outbreak in the three countries. These programs would permit financial assistance to these employees and their immediate families for treatment and care in the United States or elsewhere. Again, as discussed above, we have been advised by the IRS Office of Chief Counsel that employees who contract Ebola indirectly from a person who originally contracted the disease in one of the three countries identified above qualify for assistance.

Qualified Disaster Relief Payments

Qualified disaster relief payments made by Employee Disaster Relief Funds and Employer-Sponsored Private Foundations include amounts paid to or for the benefit of an individual to:

  1. reimburse or pay reasonable and necessary personal, family, living, or funeral expenses (not compensated by insurance or otherwise) incurred as a result of the Ebola outbreak in Guinea, Liberia and Sierra Leone); and
     
  2. reimburse or pay reasonable and necessary expenses (not compensated by insurance or otherwise) to repair a personal residence or its contents to the extent such repair, rehabilitation or replacement is attributable to the Ebola outbreak in Guinea, Liberia and Sierra Leone (for example alternations necessary to care for the person in quarantine or for the contents that are destroyed in the effort to be sure that Ebola does not spread).

Funds provided via leave-based donation payments must go to organizations described in Section 170 of the Internal Revenue Code, which include churches, organizations exempt for tax under Section 501(c)(3) of the Internal Revenue Code, and certain other tax-exempt organizations. These organizations can provide Ebola relief assistance, including trying to find a cure for the West Africa Ebola outbreak, pursuant to the tax-exempt restrictions applicable to such organizations.

The Tax Attorneys at Waller stand ready to assist any employer desiring to establish a leave-based donation program; to create and obtain IRS qualification for an Employee Disaster Relief Fund, or, if necessary, to modify an already existing qualified Employee Disaster Relief Fund to address the Ebola disaster if the organizational documents of such existing fund are too restrictive. For additional information please contact J. Leigh Griffith, Jon Gaston, Aaron Flinn or any member of Waller’s Tax practice at 800-487-6380. Please visit Waller’s Ebola Legal Resource for updates.


The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.