Part III - Administrative, Procedural and Miscellaneous

Treatment of Certain Amounts Paid to Section 170(c) Organizations under
Employer

Leave-Based Donation Programs

**Notice 2001**-**69**

PURPOSE AND OVERVIEW

In the aftermath of the September 11, **2001** terrorist attacks, a
number of

employers have adopted or are considering adopting leave-based donation
programs,

under which employees forgo vacation, sick, or personal leave in
exchange for

employer contributions of amounts to organizations described in § 170(c)
of the Internal

Revenue Code. This **Notice** provides interim guidance on the
application of income and

employment taxes to, and the proper reporting of, payments by employers
under these

programs. During the period covered by this interim guidance, the
Internal Revenue

Service and the Treasury Department intend to study whether it may be
appropriate to

modify the regulations under § 61 to address certain leave-based
donation programs.

BACKGROUND

Under general assignment-of-income tax principles, where, pursuant to an

agreement or understanding, services are rendered to a person for the
benefit of an

organization described in § 170(c) and an amount for such services is
paid to such

organization by the person to whom services are rendered, the amount so
paid

constitutes income to the person performing the services. Section
1.61-2(c) of the

Income Tax Regulations. See also Lucas v. Earl, 281 U.S. 111 (1930);
Rev. Rul. 58-

495, 1958-2 C.B. 27. Under general constructive receipt principles, when
income is

made available so that the taxpayer may draw upon it at any time, the
income is

constructively received by the taxpayer unless the taxpayer\'s control
of its receipt is

subject to substantial limitations or restrictions. Section 1.451-2(a).
However,

application of assignment-of-income and constructive receipt principles
depends on the

facts and circumstances of each case. See, e.g., Commissioner v.
Giannini, 129 F.2d

638 (9th Cir. 1942).

INTERIM GUIDANCE

The Service will not assert that payments made by an employer to an

organization described in § 170(c), in exchange for vacation, sick, or
personal leave that

the employee elects to forgo, constitute gross income or wages of an
employee,

provided that the payments are made to such organizations before January
1, 2003.

Similarly, the Service will not assert that the opportunity to make such
an election

results in constructive receipt of gross income or wages for employees.

Amounts to which this interim guidance applies need not be included in
Box 1, 3

(if applicable), or 5 of the Form W-2.

Participating employees may not claim a charitable contribution
deduction under § 170 with respect to the value of forgone leave
excluded from compensation and

wages. In the case of an employer, the Service will not assert that
payments made

under such programs before January 1, 2003 are deductible under § 170,
rather than

under § 162.

REQUEST FOR COMMENTS

The Service and the Treasury Department invite comments on the taxation
of

leave-based donation programs, including comments on whether § 1.61-2(c)
should be

modified to except certain leave-based donation programs from the
assignment-of-

income doctrine, and on appropriate limitations to any such exception.
Comments are

also requested on the application of constructive receipt principles in
connection with

those programs. Finally, comments are requested on what types of
leave-based

donation programs employers currently offer.

Comments may be submitted on or before February 1, 2002, to Internal
Revenue

Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20224,
Attn:

CC:ITA:RU (**Notice 2001**-**69**), Room 5226. Submissions may also be
sent electronically

via the Internet to the following e-mail address:

**notice**.comments@m1.irscounsel.treas.gov.

All materials submitted will be available for

public inspection and copying.

FURTHER INFORMATION

For further information, please contact Mr. Sheldon A. Iskow at (202)
622-4920 (not a

toll-free call).