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By Bob Moreland CPA, Tax Manager Ohio Office

In addition to postponing various tax filing deadlines for individuals and businesses affected by Hurricane Sandy, the IRS is allowing qualified payments to affected individuals to be excluded from taxable income and permitting employees to make leave based donations to Hurricane Sandy relief charities. The opportunity to make these types of charitable payments only come about when the IRS determines that there is an extreme need for relief.

Qualified Disaster Relief Payments

Generally, if an individual or business makes a charitable payment to a specific individual, the IRS will not allow this payment to be considered a deductible contribution. However in situations where a qualified disaster has occurred, the IRS will allow qualified disaster relief payments to be excluded from taxable income.

The tax code defines these payments as any payment to or for the benefit of an individual to reimburse or pay for any personal, family or funeral expenses incurred as a result of the qualified disaster. This would also include any assistance provided to cover the costs of repair or replace a personal residence or belongings not already covered by insurance proceeds.

Additionally, by designating Hurricane Sandy as a qualified disaster, employer sponsored private foundations will be allowed to provide disaster relief to employee victims affected by the hurricane without jeopardizing the private foundation's tax exempt status.

Employer Leave Based Donation Programs

As a result of the September 11, 2001 attacks, a second popular means of making contributions to charities aiding victims of disaster is the employer leave based donation program. Under this type of program the employees elect to forgo vacation, sick or personal leave time in exchange for payments made by the employer to a charitable organization assisting the victims.

When the election is made by the employee, the following treatment applies:

  • The employees will not be taxable on amounts paid in respect of their elections.
  • The employees are not entitled to charitable contribution deductions for the payments made by the employer.
  • The amounts so paid will not constitute wages subject to employment tax.
  • The employer need not report payments so made on employees' Forms W-2.
  • The employer may deduct the payments as salaries and wages expense rather than a charitable contribution which is subject to limitations).

In December of 2012, the IRS released Internal Revenue Bulletin 2012-51 to provide additional guidance for employers that are considering adopting this type of program to aid in the relief of the storm victims. Please refer to the following link for additional information.


If you have any questions regarding the article above or any other issue affecting your not-for-profit organization please contact your Blue & Co. advisor or e-mail us at or call us at 800-717-BLUE


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CIRCULAR 230 DISCLOSURE: To ensure compliance with recently-enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments, is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein.


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