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Federal Tax Coordinator 2d
Chapter J Income: Taxable and Exempt
¶ J-1200 Prizes and Awards.
¶ J-1214 Exclusion from gross income of certain employee achievement awards.
Federal Tax Coordinator 2d
¶J-1214. Exclusion from gross income of certain employee
achievement awards.
An employee generally includes in gross income the fair market value of any award received from his
employer, 1 see ¶ J-1201 et seq. However, gross income doesn't include the value of an employee
achievement award (defined below) received by the taxpayer if the cost to the employer of the employee
achievement doesn't exceed the amount allowable as a deduction to the employer for the cost of the
employee achievement award. 2
Different rules apply to determine the amount of the employee's exclusion of an employee achievement
award, depending on whether the cost was fully deductible by the employer (see ¶ J-1216 ) or wasn't
fully deductible by the employer (see ¶ J-1217 ).
In the case of a tax-exempt employer, the exclusion limitation is based on the deduction that would be
allowed if the employer were subject to tax. 3 The deductibility of these awards is discussed in ¶ L-2313
.
Proposed regs would deny an exclusion for any achievement award made by a sole proprietorship to the
sole proprietor. 4
Proposed regs would provide that nothing contained in Code Sec. 74 (c)(1) (discussed above) would
prevent the exclusion of the value of an employee award that is otherwise qualified as an exclusion as a
de minimis fringe under Code Sec. 132(e) , 5 see ¶ H-1800 et seq.
Employee achievement award defined.
An employee achievement award for purposes of the rules discussed above is an employee
achievement award as defined in Code Sec. 274(j) 6 -generally an item of tangible personal property
given to an employee in recognition of either length of service or safety achievement, see ¶ L-2310 et
seq.
1 Code Sec. 74(a) .
2 Code Sec. 74 (c )(1) .
3 Code Sec. 74 (c)(3) .
4 Prop Reg § 1.74-2(d)(1) .
5 Prop Reg § 1.74-2(e) .
6 Code Sec. 74 (c)(1) .
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