Paul L. Caron

Monday, April 24, 2006

IRS on Tax Consequences of Receipt of Gift from Charity

Irs_logo_240The IRS recently released Information Letter 2006-0027, which noted that "payments made by a tax-exempt organization, pursuant to its purpose statement, to help needy individuals pay for the cost of an adoption" are nontaxable gifts and not income:

Situation 2 of Rev. Rul. 2003-12, 2003-1 C.B. 283, considered whether a grant received by an individual under a § 501(c)(3) charitable organization’s program to pay or reimburse certain expenses incurred as a result of a disaster was includable in the individual’s gross income. Rev. Rul. 2003-12 cites Rev. Rul. 99-44, 1999-2 C.B. 549, for the proposition that “in general, a payment made by a charity to an individual that responds to the individual’s needs, and does not proceed from any moral or legal duty, is motivated by detached and disinterested generosity.” In Situation 2 of Rev. Rul. 2003-12, the grants made by the charitable organization are designed to help distressed individuals with unreimbursed medical, temporary housing, or transportation expenses they incur as a result of a flood. Under these facts, Rev. Rul. 2003-12 concludes that payments made by the § 501(c)(3) charitable organization are made o ut of detached and disinterested generosity rather than to fulfill any moral or legal duty and, thus, are excluded from the gross income of the recipients under § 102. Rev. Rul. 2003-12 also concludes that the amounts excluded from gross income under the ruling are not subject to information reporting under § 6041.

Thus, payments analogous to those described in your letter have been held to be gifts and, therefore, not includible in the recipient’s gross income or subject to information reporting if the payments are made directly to the needy individuals.

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