Tax on cash gift receieved

[jthawani]

I have a gift related question. If someone receives cash gifts from people for admiration for saving a life, then is the cash amount received taxable in USA? They are only $10 or $20 from each person.

[DaveO]

As long as the cash given is truely a gift

There is no tax due.

[solomon]

I agree

with DaveO. This sounds like the money was given out of admiration and not as a prize or award which would fall under Sec. 74 and then perhaps be taxable.

[jthawani]

Thanks a lot but can you tell me what section can i refer to? Additionaly one of my friends told me the client is not a tax exempt entity. Rewards and prizes are taxable misc income. It's not a gift.

[solomon]

Section

102 and the Reg. 1.102-1 address gifts and inheritances. Section 74 and the Reg. address prizes and awards. The former is excluded from income and the latter usually is not excluded. Your friend's comment about the recipient not being a non-taxable entity has nothing to do with it.

Based upon your description, it does not sound like a prize or an award to me but rather a gift. There does not seem to be any obligation on the donor's part but rather admiration. Finally, the recipient surely was not in a contest.

[New York Enrolled Agent]

Jthawani

Agree with Solomon - your original post indicates a gift.

The Supreme Court in Duberstein (citations omitted) wrote the following: " A gift in the statutory sense, on the other hand, proceeds from a "detached and disinterested generosity," ... "out of affection, respect, admiration, charity or like impulses." ... And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention."

When that fellow jumped on the subway tracks in NYC to save the passenger, the initial money he received in the mail were gifts - no taxable income. People gave purely out of affection, etc.

Once he went on Deal or No Deal and other similar venues, the income he received was taxable. While there still might be an element of affection, the TV producers had "bigger" motives.

[jthawani]

Thanks a lot guys for your help. I agree with the reasons why these gifts should not be considered income. However, I dont understand why these receipts are being considered a gift and not a prize or award.

According to SE. 74, gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement (like in this case, i think)
but only if -
(1) the recipient was selected without any action on his part
to enter the contest or proceeding;
(2) the recipient is not required to render substantial future
services as a condition to receiving the prize or award

Thus if considered an award, this amount recieved is not taxable.

Similarily, if considered a gift under § 102(a), a gift is not included in gross income if its proceeds are “from a ‘detached and disinterested generosity,’ ... ‘out of affection, respect, admiration, charity or like impulses.’” Commissioner v. Duberstein, 363 U.S. 278, 285 (1960), 1960-2 C.B. 428. Moreover, payments that proceed “primarily from the ‘constraining force of any moral or legal duty’ or from ‘the incentive of anticipated benefit’ of an economic nature” are not gifts.

This circumstance fills the criteria of a gift too.

Now, I am confused whether these receipts can be considered as 'gift' or 'prize or award'. Additional information, this person can now also apply for financial aid at ivy tech. He may also receive a free trip to disney land.

[solomon]

Gift or Award

"Thanks a lot guys for your help. I agree with the reasons why these gifts should not be considered income. However, I dont understand why these receipts are being considered a gift and not a prize or award."

Reread NY Enrolled Agent's response.