n-06-59.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III - Administrative, Procedural, and Miscellaneous

Amounts Paid Pursuant to a Leave-Sharing Plan to Assist Employees Affected by a
Major Disaster Declared by the President of the United States

Notice 2006-59

PURPOSE
This notice provides guidance on the federal tax consequences of certain leave-
sharing plans that permit employees to deposit leave in an employer-sponsored leave
bank for use by other employees who have been adversely affected by a major disaster,
as defined herein.
BACKGROUND
Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (Stafford Act), 42 U.S.C. § 5170, provides that the President may declare an event a
major disaster. The President also may determine that the major disaster warrants
individual assistance or individual and public assistance from the federal government
under the Stafford Act. See, e.g., 42 U.S.C. § 5170b.
Section 9004 of Pub. L. No. 105-18, 5 U.S.C. § 6391, provides that in the event
of a major disaster or emergency, as declared by the President, that results in severe
adverse effects for a substantial number of employees, the President may direct the
Office of Personnel Management to establish a leave-sharing plan for federal

2

employees who are adversely affected by the disaster or emergency.
Section 61(a) of the Internal Revenue Code provides that, except as otherwise
provided by law, gross income means all income from whatever source derived.
Under the facts of Rev. Rul. 90-29, 1990-1 C.B. 11, an employer establishes a
leave-sharing plan under which employees who suffer “medical emergencies” may
qualify as recipients of leave surrendered to the employer, or deposited in an employer-
sponsored leave bank, by other employees. The ruling concludes that the amounts the
employer pays to a leave recipient pursuant to the plan are includible in the gross
income of the recipient under § 61 as compensation for services provided by that
recipient to the employer, and “wages” for purposes of the Federal Insurance
Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), the Railroad
Retirement Tax Act (RRTA), the Railroad Unemployment Repayment Tax (RURT), and
income tax withholding, unless excluded therefrom under a specific provision of the
Code. The ruling also concludes that an employee who surrenders leave to the
employer or deposits leave in the leave bank pursuant to the plan does not realize any
income or incur any deductible expense or loss upon the surrender or deposit of the
leave or its use by the recipient. The ruling also states that its conclusions and rationale
apply only to bona fide employer-sponsored leave-sharing arrangements.
DEFINITIONS
Major disaster means (a) a major disaster as declared by the President under
§ 401 of the Stafford Act, 42 U.S.C. § 5170, that warrants individual assistance or

3

individual and public assistance from the federal government under that Act, or (b) a
major disaster or emergency as declared by the President pursuant to 5 U.S.C. § 6391,
in the case of employees described in that statute.
Major disaster leave-sharing plan means a plan that meets the requirements of
this notice.
Leave donor means a current employee of the employer whose voluntary written
request to deposit leave in a leave bank under a major disaster leave-sharing plan is
approved by the employer.
Leave recipient means a current employee for whom the employer has approved
an application to receive leave under a major disaster leave-sharing plan.
Family member means any family member as defined by the major disaster
leave-sharing plan.
MAJOR DISASTER LEAVE-SHARING PLAN
For purposes of this notice, a major disaster leave-sharing plan is a written plan
meeting each of the following requirements:
1. The plan allows a leave donor to deposit accrued leave in an employer-
sponsored leave bank for use by other employees who have been adversely affected by
a major disaster. For purposes of the plan, an employee is considered to be adversely
affected by a major disaster if the disaster has caused severe hardship to the employee
or a family member of the employee that requires the employee to be absent from work.

4

2. The plan does not allow a leave donor to deposit leave for transfer to a
specific leave recipient.
3. The amount of leave that may be donated by a leave donor in any year
generally does not exceed the maximum amount of leave that an employee normally
accrues during the year.
4. A leave recipient may receive paid leave (at his or her normal rate of
compensation) from leave deposited in the leave bank. Each leave recipient must use
this leave for purposes related to the major disaster.
5. The plan adopts a reasonable limit, based on the severity of the disaster, on
the period of time after the major disaster occurs during which a leave donor may
deposit the leave in the leave bank, and a leave recipient must use the leave received
from the leave bank.
6. A leave recipient may not convert leave received under the plan into cash in
lieu of using the leave. However, a leave recipient may use leave received under the
plan to eliminate a negative leave balance that arose from leave that was advanced to
the leave recipient because of the effects of the major disaster. A leave recipient also
may substitute leave received under the plan for leave without pay used because of the
major disaster.
7. The employer must make a reasonable determination, based on need, as to
how much leave each approved leave recipient may receive under the leave-sharing
plan.

5

8. Leave deposited on account of one major disaster may be used only for
employees affected by that major disaster. Except for an amount so small as to make
accounting for it unreasonable or administratively impracticable, any leave deposited
under a major disaster leave-sharing plan that is not used by leave recipients by the end
of the period specified in paragraph 5, above, must be returned within a reasonable
period of time to the leave donors (or, at the employer’s option, to those leave donors
who are still employed by the employer) so that the donor will be able to use the leave.
The amount of leave returned to each leave donor must be in the same proportion as
the amount of leave donated by the leave donor bears to the total amount of leave
donated on account of that major disaster.
GUIDANCE
The IRS will not assert that a leave donor who deposits leave in an employer-
sponsored leave bank under a major disaster leave-sharing plan realizes income or has
wages, compensation, or rail wages with respect to the deposited leave, provided that
the plan treats payments made by the employer to the leave recipient as “wages” for
purposes of FICA, FUTA, and income tax withholding, and as “compensation” for
purposes of RRTA and “rail wages” for purposes of RURT, unless excluded therefrom
under a specific provision of the Code. A leave donor may not claim an expense,
charitable contribution, or loss deduction on account of the deposit of the leave or its
use by a leave recipient.
DRAFTING INFORMATION

6

The principal author of this notice is Shareen S. Pflanz of the Office of Associate
Chief Counsel (Income Tax & Accounting). For further information regarding this notice,
contact Shareen S. Pflanz at (202) 622-4920 (not a toll-free call).