Charitable Leave Donation Programs: Treatment of Employer Financial Support in Public Support Calculations
How is financial support made under an employer leave based donation program to a qualified tax-exempt organization for victims of Hurricane Katrina treated for purposes of computing public support under 170(b)(1)(A)(vi) of the Internal Revenue Code?
Notice 2005-68 provides that under a leave donation program employees can elect to forgo their vacation, sick or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for victims of Hurricane Katrina. Amounts employers distribute under a leave donation program are not treated as gross income or wages to employees and employees may not claim a charitable contribution deduction for such amounts.
In determining if an organization qualifies as publicly supported under section 170(b)(1)(A)(vi) of the Code, support from an individual or corporation is included as support from the general public only to the extent that the total contributions from such individual or corporation for a computation period are not more than two percent of the organization’s total support. Since employees may use their leave to provide financial support to a qualified tax-exempt organization, amounts received by an organization attributable to employees' donations of leave from leave donation programs are treated as numerous grants from employees (rather than one large grant from the employer) for purposes of computing public support under section 170(b)(1)(A)(vi). For more information about the public support computation, see Publication 557, Tax-Exempt Status for Your Organization.
Caution: Amounts paid by employers that match the value of the amounts attributable to employees' donations of leave are not treated as numerous grants from employees for purposes of computing public support under section 170(b)(1)(A)(vi).
An organization reviewing contributions for public support purposes would need to know the cash value of leave donations from each employee to determine which contributions fall below two percent of the organization's total support. This type of information could be obtained from employers participating in a leave donation program.