Legal aspects of gifts

At common law, for a gift to have legal effect, it was required that there be (1) intent by the donor to give a gift, (2) acceptance of the gift by the donee, and (3) delivery to the donee of the item to be given as a gift.

In some countries, certain types of gifts above a certain monetary amount are subject to taxation. For the United States see Gift tax in the United States.


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 for taxes. Although many items might appear to be gift, courts have held that 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 that 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 that no justification exists. It is also said that 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.