IRS Approves Employer-Sponsored Leave Donation Programs

I n Notice 2001-69, the IRS outlined the tax treatment of accrued vacation, sick or personal leave donated by employees to an employer-sponsored program that converts the leave into cash and donates the cash to charity. Specifically, donated leave paid to charitable organizations before 2003 will be excludible from the donating employees' income both for income tax and employment tax purposes.

Although the Service does not specifically say that a donation of leave to a charitable organization will not result in an employee's assignment of income or constructive receipt, it will not assert that such donated leave constitutes gross income or wages. Therefore, donated leave need not be included in Box 1, 3 (if applicable) or 5 of Form W-2. However, to prevent what would effectively result in double deduction, employees who participate may not claim a charitable deduction under Sec. 170 for the donated leave.As to the employer's deduction, the notice provides that the IRS will not assert that payments made under such programs are deductible under Sec. 170, rather than under Sec. 162.

As indicated, Notice 2001-69 is effective only for payments made to charitable organizations before 2003. In the meantime, the Service and Treasury invite comments on the proper taxation of leave-based donation programs under either the assignment-of-income doctrine or constructive-receipt principles.

From Charles Deliee, Washington, DC