IRS Offers Tax Breaks for Ebola Charity and Medical Expenses

The Internal Revenue Service issued two items of guidance Wednesday in response to the need for charitable and other relief due to the Ebola outbreak in West Africa.

The first piece of guidance in Notice 2014-68 provides guidance on the treatment of leave-based donation programs to aid victims of the Ebola virus outbreak occurring in the West African countries of Guinea, Liberia, and Sierra Leone for income and employment tax purposes. The guidance offers special relief to support leave-based donation programs to help victims who have suffered from the Ebola outbreak in those countries.

The other piece of guidance designates the Ebola outbreak in those countries as a qualified disaster for federal tax purposes. Notice 2014-65 designates the Ebola virus outbreak occurring in the West African countries of Guinea, Liberia, and Sierra Leone as a qualified disaster for purposes of Section 139 of the Tax Code. 

Under the leave-based donation guidance, the IRS said employees can donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims of the Ebola outbreak in Guinea, Liberia or Sierra Leone. Employees can forgo leave in exchange for employer cash payments made before Jan. 1, 2016. Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the amount of the cash payment.

For example, if an American company has such a program and makes a cash donation of the value of an employee’s donated leave before Jan. 1, 2016, to an organization that is providing medical services and supplies for the relief of victims of the Ebola outbreak in Guinea, Liberia or Sierra Leone, the IRS will not consider the amount of that payment as gross income or wages of the employee. In additionally, the IRS said it would not assert that the U.S. company can only deduct such cash payments under Section 170 of the Internal Revenue Code.

The IRS also pointed out that there are some simple steps that taxpayers can take to ensure that their contributions go to qualified charities. More information is available at IRS.gov.

The related piece of guidance issued by the IRS on Wednesday, the qualified-disaster guidance, allows recipients of qualified relief payments related to the Ebola outbreak in Guinea, Liberia and Sierra Leone to exclude those payments from income on their tax returns. Under the guidance, payments generally include amounts to cover necessary personal, family, living or other qualified expenses that were not covered by insurance.

For example, if an employee living in Guinea receives reimbursement from an employer-sponsored charitable organization for medical expenses incurred by the employee as a result of the Ebola outbreak in Guinea, the reimbursement will not be included in the employee’s gross income for U.S. federal income tax purposes.

Similarly, if an employee of an American company is relocated within Liberia under a quarantine order due to the Ebola outbreak in Liberia, and the American company pays for the employee’s transportation, rent and living expenses related to the quarantine order, those payments will not be included in the employee’s gross income for U.S. federal income tax purposes.

Wednesday’s announcement of qualified relief follows similar steps taken in other qualified disasters, such as the earthquake and tsunami in Japan and the earthquake in Haiti. The announcement about leave-based donation programs is also similar to programs available in the aftermath of Hurricane Sandy and Hurricane Katrina.

Michael Cohn, editor-in-chief of AccountingToday.com.

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