On Friday, the IRS designated the earthquake in Haiti as a “qualified disaster” for purposes of IRC § 139 (Notice 2010-16). As a result, victims of the earthquake who receive qualified disaster relief payments will be able to exclude those payments from income. The notice also allows employer-sponsored private foundations to assist their employees in areas affected by the earthquake without jeopardizing their tax-exempt status.
Qualified disaster relief payments are defined by section 139 as amounts paid:
(1) To or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living or funeral expenses (not otherwise compensated for by insurance or otherwise) incurred as a result of a qualified disaster, or
(2) To reimburse or pay reasonable and necessary expenses (not otherwise compensated for by insurance or otherwise) incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation or replacement is attributable to a qualified disaster.
The IRS must declare that a disaster is a “qualified disaster” for payments to meet these criteria.
Under the notice, employer-sponsored private foundations will be allowed to make qualified disaster relief payments to employee victims of the earthquake without affecting their tax-exempt status under the private inurement rules of Treas. Reg. § 1.501(c)(3)-1(c)(2). The IRS will presume that qualified disaster relief payments made by a private foundation to its employees and their family members in areas affected by the earthquake are consistent with the foundation’s charitable purposes (IRS News Release IR-2010-11).
Signs Law Accelerating Haiti Donation Deductions
Also on Friday, President Obama signed into law the Haiti Assistance Income Tax Relief Act. The new law allows taxpayers to deduct contributions made for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti on their 2009 tax returns instead of on their 2010 returns. To be eligible for an accelerated deduction, the contributions must be made after Jan. 11, 2010, and before March 1, 2010, and meet the requirements of IRC § 170.
The act also allows such donations to be substantiated by a telephone bill showing the name of the donee organization, the date of the contribution and the amount of the contribution.