July 26, 2006 |
Posted By Diane Pfadenhauer |
Donated Leave Programs - IRS Guidance
The IRS has recently issued guidance on the subject of donated leave programs in the case of major disasters. Generally, when there is a major upheaval, it is not unlikely that employers will want to assist employees by allowing them to donate leave time to those in need. The purpose of the guidance is "to provide guidance on the federal tax consequences of certain leavesharing plans that permit employees to deposit leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster...."
I have included the gist of IRS Notice 2006-59 here:
A major disaster leave-sharing plan is a written plan meeting each of the following requirements:
- The plan allows a leave donor to deposit accrued leave in an employer sponsored leave bank for use by other employees who have been adversely affected by a major disaster (as declared by the president).
- The plan does not allow a leave donor to deposit leave for transfer to a specific leave recipient.
- The amount of leave that may be donated by a leave donor in any year generally does not exceed the maximum amount of leave that an employee normally accrues during the year.
- A leave recipient may receive paid leave (at his or her normal rate of compensation) from leave deposited in the leave bank. Each leave recipient must use this leave for purposes related to the major disaster.
- The plan adopts 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.
- A leave recipient may not convert leave received under the plan into cash in lieu of using the leave. However, a leave recipient may use leave received under the plan to eliminate a negative leave balance that arose from leave that was advanced to the leave recipient because of the effects of the major disaster. A leave recipient also may substitute leave received under the plan for leave without pay used because of the major disaster.
- The employer must make a reasonable determination, based on need, as to how much leave each approved leave recipient may receive under the leave-sharing plan.
- Leave deposited on account of one major disaster may be used only for employees affected by that major disaster. Except for an amount so small as to make accounting for it unreasonable or administratively impracticable, any leave deposited under a major disaster leave-sharing plan that is not used by leave recipients by the end of the period specified in paragraph 5, above, must be returned within a reasonable period of time to the leave donors (or, at the employer’s option, to those leave donors who are still employed by the employer) so that the donor will be able to use the leave. The amount of leave returned to each leave donor must be in the same proportion as the amount of leave donated by the leave donor bears to the total amount of leave donated on account of that major disaster.