U.S. Tax Rules Encourage Aid to Haiti
Two recent developments in the United States are intended to encourage charitable giving and philanthropic assistance to Haiti, as well as provide tax relief, in light of the devastating January 12 earthquake there. Both are of limited duration, so require quick action by those who wish to avail themselves of these new rules.
Charitable Contributions to Haiti
On January 22, President Obama signed into law H.R. 44621 (P. L. 111-126), which provides that certain charitable contributions made in 2010 for relief of Haiti earthquake victims can be treated as if they were made on December 31, 2009. This has the effect of allowing the taxpayer to take the itemized deduction for such a contribution on his or her 2009 tax return, accelerating by one year the tax benefit of making such a contribution. To qualify, the contribution must be in cash (not goods), and must have been made after January 11, 2010, and before March 1, 2010. To be deductible a donation must be a made to a U.S. qualified charity. Direct donations to foreign charities are not deductible for U.S. tax purposes. The law includes a provision that allows a taxpayer to use a telephone bill as substantiation for a donation made via a text message sent from a cellular telephone, provided the telephone bill includes the name of the donee organization, the date of the contribution, and the amount of the contribution.
Itemized deductions are subject to phase-out for taxpayers whose adjusted gross income exceeds certain thresholds. This phase-out is reduced by two thirds for 2009 returns, but is fully repealed for 2010 returns. Taxpayers should therefore carefully consider whether it is beneficial to claim a charitable deduction on their 2009 returns as opposed to their 2010 returns.
Haiti as Qualified Disaster Area
In a related development, the U.S. Internal Revenue Service announced on January 22, 2010 (IR-2010-11; Notice 2010-16)2 that it had designated the areas affected by the Haiti earthquake as a qualified disaster area under section 139 of the Internal Revenue Code. This classification allows recipients of qualified disaster relief payment to exclude those payments from income on their tax returns.
In addition, it allows employer-sponsored private foundations to assist Haiti earthquake victims without affecting their tax-exempt status, by presuming that qualified disaster relief payments to employees and their families in affected areas of Haiti are consistent with the foundation’s charitable purpose.
A result of this classification is that companies that have employer-sponsored private foundations are encouraged to use the foundation to assist employees in Haiti. Such employees who are U.S. taxpayers, such as those on international assignment, will not be taxable on such aid payments received.