Taxability of $100 gift card -- door prize

[Penelope]

Client asks if $100 gift cards given as door prizes to attendees at organization event are taxable to recipient. The organization is a union local and the attendees are dues paying members. The total amount won't be insignificant, because quite a number of attendees (maybe all) will receive a door prize!

Any ideas?

Thanks once again for all of the help.

[Kram BergGold]

Check out Oscars

This issue came up one or two yearas ago for gift bags given out at the Oscars. The IRS and the Academy came to an agreement on the taxability of these types of gifts. Try a google search.

[erchess]

All income is taxable unless specifically exempt and I know of no exemption that would apply in this case.

I have no idea whether the union should arrange for the prizes to show up in box seven of the employees' Forms W-2 or whether the employees should put the money on line 21 of their Forms 1040.

[Burke]

Client asks if $100 gift cards given as door prizes to attendees at organization event are taxable to recipient. The organization is a union local and the attendees are dues paying members. The total amount won't be insignificant, because quite a number of attendees (maybe all) will receive a door prize! Any ideas? Thanks once again for all of the help.

Prizes are taxable income, line 21. If consideration is given, i.e, a raffle for instance, can deduct cost of raffle ticket.

[Penelope]

Most members aren't employees

Thanks, everyone. It was as suspected!

Since most of the recipients aren't employees, it seems that the union officials should include a notice with the gift card, to the effect that the prize should be included in taxable income, probably on line 21 of the 1040.

I guess for recipients who are employees, it would probably be best to add the $100 to their W-2 earnings, then. Mutter, mutter.

[Snaggletooth]

De Minimus

All income is taxable unless specifically exempt and I know of no exemption that would apply in this case.

Not true. There is such a thing as "de minimus" income or gifts. The governing thought process is that the amount of income can be so small that it is not worth the hassle to the IRS, taxpayer, payer, or anyone else.

What I DON'T know is whether there are guidelines, or where they might be. I doubt they exist in Code or Regs, but perhaps in audit guides, etc. I also think the entire qualification under "de minimus" is the matter of extent, both individually and in the aggregate, and probably very subjective under the doctrine of "facts and circumstances."

[Penelope]

Related issue: De minimis pmts: watches to retirees????

Thanks for this response. I was wondering about that (the matter of de minimis payments). To each member (=taxpayer and recipient), $100 would probably be de minimis. But in the aggregate, the amount could be significant, i.e., in the thousands. As far as I know (which isn't very far), the entity would NOT be required to report the $100 on a 1099.

Now, I'm remembering that the retirees are given watches, which may be valued at several hundreds of dollars. Is that also taxable, I wonder? Many, many members have opted for early retirement, because the alternative is layoff.

Still, the total of a $100 gift card and watch wouldn't reach the $600 minimum for a 1099.

More info, in case you are wondering -- The local has lots of cash, which came from individual members...via dues payments; so the local, which is prohibited (by the constitution) from reducing dues payments, would like to return some of the money to members (from whence it came) before they are laid off or take early retirement.

Any more ideas/feedback.....?

[Snaggletooth]

My Interpretation

is certainly not authoritative but is the result of seeing this happen with numerous employers.

Penelope, I think gifts in excess of $100 are probably much more than the IRS would consider "de minimus." I've seen general acceptance of amounts in the $25-$50 range. But keep in mind that a $25 Christmas present for all General Motors employees would result in a deduction of some $10 million that would be frowned upon, especially when GM has the resources to add $25 to each W-2.

A watch valued at several hundred dollars would not be considered "de minimus" although I'm not sure how it should be properly reported.

[Penelope]

Notice of taxability then by Local?

Thanks for the prompt response.

Maybe, then, a written notice of taxability given to the member (who is not an employee) with the watches and gift cards might fulfill the Local's responsibilities...?

It seems that the value of these same items should be included on W-2's of those member-recipients who are also employees.....

Thanks again, and any further thoughts are welcome.

[DonPriebe]

There is such a thing as "de minimus" income or gifts. The governing thought process is that the amount of income can be so small that it is not worth the hassle to the IRS, taxpayer, payer, or anyone else.

What I DON'T know is whether there are guidelines, or where they might be. I doubt they exist in Code or Regs, but perhaps in audit guides, etc. I also think the entire qualification under "de minimus" is the matter of extent, both individually and in the aggregate, and probably very subjective under the doctrine of "facts and circumstances."

You could look in TTB, which has several pages on Employee Fringe Benefits. For example, holiday gifts of low FMV, occasional parties and picnics, occasional use of office machines, etc. are all deminimis. Cash is never deminimis, except as reimbursement for specific deminimis items. That gold watch is a Employee Achievement Award, and is non-taxable up to $1,600.

The ambitious might try IRC §132.

[Penelope]

My poor Tax Book has so many new pages (updates after publication, due to last minute changes by congress) stapled into it that it is now very cumbersome to use! I sure hope this doesn't happen again this year.

Thanks -- I had forgotten about the Employee Achievement Award exclusion that would apply to, for example, gold watches. But I wonder if it matters that almost all recipients are not actually employees, but dues-paying members of the local union, whose salaries are paid by their employer, a different entity...?