IRS Announces 'Qualified Disaster' Relief For Japan

by Mike Godfrey, Tax-News.com, Washington

12 April 2011

The United States Internal Revenue Service (IRS) has issued guidance that designates the earthquake and tsunami in Japan in March 2011 as a ‘qualified disaster’ for federal tax purposes.

The guidance, that affects recipients of disaster relief payments as well as employer-sponsored private foundations, allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Furthermore, the guidance allows employer-sponsored private foundations to assist employee victims in areas affected by the March 2011 earthquake and tsunami in Japan without affecting their tax-exempt status.

It was pointed out that, while charities usually fall into one of two categories – public charities or private foundations - a private foundation that is employer-sponsored may, under tax law, make qualified disaster relief payments to employees affected by a qualified disaster.

These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences, or repair or replace the contents, to the extent that they were not covered by insurance. As before, these payments would not be included in the individual recipient’s gross income.

The IRS will presume that qualified disaster relief payments made by an employer-sponsored private foundation to employees and their family members in areas affected by the earthquake and tsunami in Japan are consistent with the foundation's charitable purposes.

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