Ebola is a Qualified Disaster

The IRS has designated the outbreak of the Ebola virus as a qualified disaster under section 139 of the Internal Revenue Code. In the past, most qualified disaster designations have been for weather related events, or terrorism. Query whether this is the first time a qualified disaster has been declared for an infectious disease.

The principal consequence of the designation is to provide that victims who receive certain types of payments to relieve burdens suffered because of Ebola do not have income as a result of the payment (to the extent not compensated for by insurance). 

In addition, a qualified disaster designation has implications for spending by charitable organizations, particularly private foundations. For example, the IRS states that as a general matter corporate foundations “may choose” to provide assistance to employees of the corporate sponsor who are harmed by Ebola. This statement oversimplifies the issues involved, though IRS does note that “private foundations should exercise due diligence when providing disaster relief as set forth in Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations.” 

The concerns are that employers will funnel aid to select employees through the corporate foundation. This could be an act of self-dealing, the aid might not be based strictly on an objective determination of need, and further, the aid program might not be designed to serve a broad or charitable class of beneficiaries and so may really be for private not public purposes. Accordingly, the IRS details the due diligence required to prevent against such possible abuses (see pages 20-22 of the Publication). Foundations and other charities (including donor-advised funds) getting involved in disaster relief would do well to look at this guidance.

Interestingly, the sensible if elaborate due diligence regime outlined in Publication 3833 is not based on the text of the Internal Revenue Code (section 139), which makes no mention of charities or private foundations. Rather, the law here comes directly from 2001 legislative history under the heading “Rules applicable to charitable organizations making disaster relief payments.” It is a noteworthy example of law arising from the penumbra of legislation. In effect, the IRS was told in the aftermath of 9/11 to relax its attitude to foundation provision of disaster relief, but to provide for essential prophylactics. This now survives as part of section 139 qualified disaster relief.

The IRS has also provided guidance (Notice 2014-68) on leave-based donation programs in connection with Ebola. Under such a program, an employee may forego sick or annual leave in exchange for the employer making payments to a charitable organization for the relief of Ebola victims. The guidance explains that the employee does not have income as a result, nor may the employee take a charitable deduction. To qualify, the employer must make the payment to the charity before January 1, 2016.

Roger Colinvaux