Gift Tax in The United States - Tax Deductibility For Gifts

Tax Deductibility For Gifts

Pursuant to 26 U.S.C. § 102(a), property acquired by gift, bequest, devise, or inheritance is not included in gross income and thus a taxpayer does not have to include the value of the property when filing an income tax return. Although many items might appear to be gift, courts have held the most critical factor is the transferor's intent. Bogardus v. Commissioner, 302 U.S. 34, 43, 58 S.Ct. 61, 65, 82 L.Ed. 32. (1937). The transferor must demonstrate a "detached and disinterested generosity" when giving the gift to actually exclude the value of the gift from the taxpayer's gross income. Commissioner of Internal Revenue v. LoBue, 352 U.S. 243, 246, 76 S.Ct. 800, 803, 100 L.Ed. 1142 (1956). Unfortunately, the court's articulation of what exactly satisfies a "detached and disinterested generosity" leaves much to be desired.

Some situations are clearer, however.

1. "Gifts" received at promotional events are not excluded from taxation:

For example, Oprah's seemingly good deed of giving new cars to her audience does not satisfy this definition because of Oprah's interest in the promotional value that this event causes for her television show.

1. "Gifts" received from employers that benefit employees are not excluded from taxation:

26 U.S.C. § 102(c) clearly states employers cannot exclude as a gift anything transferred to an employee that benefits the employee. Consequently, an employer cannot gift an employee's salary to avoid taxation.

In addition, policy reasons for the gift exclusion from gross income are unclear. It is said no justification exists. It is also said the exclusion is for administrative reasons, both for taxpayers and for the IRS. Without the exclusion taxpayers would have to keep track of all their gifts, including nominal ones, during the year, and this would create additional oversight problems for the IRS.