Rev. Rul. 79-121

ISSUE

Is an amount transferred by the recipient of an honorarium pursuant to 2 U.S.C. section 441i, as amended, includible in recipient's gross income under section 61 of the Internal Revenue Code of 1954?

FACTS

The taxpayer, an elected official of the federal government, was the recipient of an honorarium of $2,500 for speaking at the national convention of a professional society. The taxpayer requested that the society pay the honorarium to an educational institution that was selected by the society from a list of five charitable organizations provided by the taxpayer.

The educational institution was a charitable organization described in section 170(c)(2) of the Code.

Section 502 of the Social Security Amendments of 1977 amends 2 U.S.C. section 441i (1976) to provide that no person while an elected person or appointed officer or employee of any branch of the federal government shall accept:

1) any honorarium of more than $2,000 (excluding amounts accepted for actual travel and subsistence expenses for such person and spouse or an aide to such person and excluding amounts paid or incurred for any agent's fees or commissions) for any appearance, speech, or article; or

2) honoraria (not prohibited by paragraph (1) of this section) aggregating more than $25,000 in any calendar year.

Further, if an honorarium payable to a person is paid instead at the person's request to a charitable organization selected by the payer from a list of 5 or more charitable organizations provided by that person, that person shall not be treated, for purposes of 2 U.S.C. 441i, as amended, as accepting that honorarium. For purposes of the above provision, the term "charitable organization" means an organization described in section 170(c) of the Code.

LAW AND ANALYSIS

Section 61 of the Internal Revenue Code of 1954 and the Income Tax Regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived including compensation for services, including fees, commissions, and similar items.

Section 1.61-2(c) of the Income Tax Regulations provides that the value of services is not includible in gross income when such services are rendered directly and gratuitously to an organization described in section 170(c) of the Code. Where, however, pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid is income to the person performing the services.

Further, the Supreme Court of the United States has held that a taxpayer who assigns or transfers compensation for personal services to another individual or entity fails to be relieved of federal income tax liability, regardless of the motivation behind the transfer. See Lucas v. Earl, 281 U.S. 111 (1930); Helvering v. Horst, 311 U.S. 112 (1940), 1940-2 C.B. 206; Helvering v. Eubank, 311 U.S. 122 (1940), 1940-2 C.B. 209.

Section 170 of the Code provides, subject to certain limitations, a deduction for charitable contributions to or for the use of organizations described in section 170(c), payment of which is made within the taxable year.

Section 170(c)(2) of the Code provides, in part, that the term "charitable contribution" means a contribution or gift to or for the use of a corporation organized and operated exclusively for educational purposes.

HOLDING

Although the amount of the honorarium transferred to the educational institution at the taxpayer's request is not treated as being accepted by the taxpayer for purposes of 2 U.S.C. 441i, as amended, nevertheless, such amount is includible in the taxpayer's gross income under section 61 of the Code. However, the taxpayer is entitled to a charitable contribution deduction, subject to the limitations set forth in section 170.