Hey IRS, that is a gift from my boss, what do you mean it is taxable?
After years of dedicated and mostly unrecognized devotion to your job at a company you do not own, the owner graciously decides to reward your years of service with a Holiday gift, or so says the email in your inbox. Daydreaming while sitting in front of your outdated computer, you dream of a new Ferrari, round trip airfare to an exotic destination, or at least a couple hundred bucks. Finally, the Friday before the long holiday weekend arrives and you are summoned to the office of your Task Master (aka your boss) to receive your long overdue just rewards. You open the door, oh so gently with a sheepish knock. You fill your lungs with air and utter the words “Mr. Scrooge, may I come in?” OK, so I stole from Charles Dickens, what do you care?
Scrooge exclaims, in his usual domineering authoritative voice, “Cratchit, sit down.” Hey, I have theme going here. He goes on to extol your virtues, blah blah blah all whilst you are thinking “Just get to it and show me the money!” Then he reaches into his miserly vault, just behind his desk, unlocks it with great secrecy and reaches inside for your holiday gift. Your eyes open wide as a saucer when you gaze upon a…
Did He or Didn’t He?
So, as to continue my theme here, I am not going to tell you what Cratchit received as a gift. You will just have to guess. However, I will tell you that it was most likely closer to something that had a value of, oh, let’s say $200 (no coal, you can thank the three ghosts).
What’s the Point?
OK, enough of the story, let’s get to the point. The question, as this is a tax blog, “Is that gift taxable to the employee?” §102(a) provides: “Gross income does not include the value of property acquired by gift.” However, there is one exception: “any amount transferred by or for an employer to, or for the benefit of, an employee is taxable.” And in the famous words of Ron Popeil, “Wait there is more!” Going the other direction, §132(e) allows employees to exclude from income de minimis gifts they receive from their employers. “De minimis” means really, really small and with little value, like a cocktail at a bar or a coffee cup with the name of the company on it.
Believe it or not, this whole subject about employer/employee gifts goes back to a court case from 1959 in which the actual gift in question was made in 1943. There is a tax concept, dating back to the early days of tax evolution, known as ascension to wealth. That is why, if you find a buried treasure in the attic of your recently purchased home, or you find a diamond at the beach, the value of which must be included in your gross income.
Let’s get back to our story. In the words of Tiny Tim “God Bless us, everyone!” I assume this includes Congress, the Tax Court and the IRS? Or maybe not!!
Gary Weiss
Gary is a graduate of the Marshall School of the University of Southern California. He founded and operates a boutique accounting firm dedicated to bringing high - quality tax preparation, tax planning and tax resolution services to individuals, small businesses, small nonprofits, family owned businesses and start-ups, at an extremely affordable price. Visit Gary Weiss CPA.