When is a "gift" (like a restaurant tip) considered income to the recipient?


N

NadCixelsyd

What prompted this question is a personal gift to a member of the
clergy.

A friend's parents were multi-millionaires. Before they died, they
gave millions to Boston College and the Catholic Church (The mom had 6
priests and a bishop at her funeral) and other charities. But in
addition, the mom gave money directly to certain priests who had
assisted her in her final years. The priests, in turn, used the funds
for their personal use like a Rolex Watch, Mercedes, first class
tickets to Hawaii for themselves. One priest alone received over
$300k over the course of five years.

Isn't this similar to a waiter's tip? The gift was given as a reward
for services rendered, just like a tip. Unlike a waiter's tip,
however, these gifts are not normally expected.

Other than a waiter's tip, at what other transactions is a
discretionary gift considered income to the recipient?
 
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S

Stuart A. Bronstein

NadCixelsyd said:
A friend's parents were multi-millionaires. Before they died,
they gave millions to Boston College and the Catholic Church
(The mom had 6 priests and a bishop at her funeral) and other
charities. But in addition, the mom gave money directly to
certain priests who had assisted her in her final years. The
priests, in turn, used the funds for their personal use like a
Rolex Watch, Mercedes, first class tickets to Hawaii for
themselves. One priest alone received over $300k over the
course of five years.

Other than a waiter's tip, at what other transactions is a
discretionary gift considered income to the recipient?
The basic rule is that if something is given in response to services
rendered and not "disinterested generosity," even if discretionary,
it is considered taxable income. The rule is not always easy to
apply. In your friend's case something given to a priest who had
been good to the donor for years, might be seen as disinterested
generosity and not specifically as a result of the services rendered
per se. It will depend on all the facts and circumstances.

___
Stu
http://DownToEarthLawyer.com
 
J

JoeTaxpayer

The basic rule is that if something is given in response to services
rendered and not "disinterested generosity," even if discretionary,
it is considered taxable income. The rule is not always easy to
apply. In your friend's case something given to a priest who had
been good to the donor for years, might be seen as disinterested
generosity and not specifically as a result of the services rendered
per se. It will depend on all the facts and circumstances.

___
Stu
http://DownToEarthLawyer.com
In the case of the priest who received $300K over 5 years, shouldn't the
amount over $13,000 have been reported each year and either (a) tax paid
by giftor or (b) a deduction against lifetime exemption noted?
A gift to church is a donation, a gift to the priest, under
disinterested generosity can't also be a donation, certainly not when
spent as OP described. Disclaimer - I am not judging, just trying to
parse out the facts.
 
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Stuart A. Bronstein

JoeTaxpayer said:
In the case of the priest who received $300K over 5 years,
shouldn't the amount over $13,000 have been reported each year
and either (a) tax paid by giftor or (b) a deduction against
lifetime exemption noted? A gift to church is a donation, a gift
to the priest, under disinterested generosity can't also be a
donation, certainly not when spent as OP described. Disclaimer -
I am not judging, just trying to parse out the facts.
Thanks. That's an excellent point. So if the money given to the
priest didn't qualify as a charitable contribution or as pay for
services, it should be brought back into the estate for estate tax
purposes.

___
Stu
http://DownToEarthLawyer.com
 

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