Ukrainian aid eligible for leave-based donation programs

The IRS on Thursday provided guidance on the tax treatment of cash payments made by employers under a leave-based donation program to help victims of Russia’s new invasion of Ukraine, which began on February 24, 2022.

A leave-based donation program allows employees to choose to forgo employer-provided vacation, personal or sick leave in exchange for their employer’s cash payment to a charity under Sec . 170(c). Generally, under the doctrine of income attribution, employees must include in income as wages or compensation the cash value of such leave, even if it is lost, but a series of notices of the IRS have provided targeted exceptions for contributions benefiting victims of specified disasters.

In this regard, the guidance in Notice 2022-28 released Thursday parallels more than a dozen previous notices dating back more than 20 years recognizing eligible disasters for purposes of leave-based donation programs. One of the first was in response to the terrorist attacks of September 11, 2001 (Notice 2001-69).

Most recently, in Notice 2021-42, the IRS extended for a second year, through December 31, 2021, its guidance in Notice 2020-46 regarding leave-based donation programs to assist victims. of the COVID-19 pandemic in the United States, District of Columbia and five US territories.

According to Thursday’s notice, donation payments based on leave taken by an employer before January 1, 2023 will not be treated as wages or compensation for the employer’s employees. An employee who gives time off that funds the payments will not be considered to have implicitly received salary or compensation. To qualify, employer payments must be made to a Sec. 170 (c) organization to help the victims of the new Russian invasion of Ukraine.

The IRS noted that President Joe Biden had issued executive orders establishing a national emergency regarding Russian actions and policies that threatened Ukraine’s peace, stability, sovereignty, and territorial integrity. On March 2, 2022, Biden announced the continuation of this national emergency.

Victims of the new Russian invasion of Ukraine whom leave-based donation programs can help include Ukrainian citizens and residents; the people who work there, travel there or are currently present there; or refugee nation, the notice says.

Employees who choose to participate in a leave-based giving program therefore cannot claim a charitable contribution deduction, but employers can deduct payments made under the program as charitable contributions under Sec. 170 or as ordinary and necessary business expenses under s. 162 if they are otherwise eligible to do so, the IRS said.

— To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].

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