Rev. Rul. 82-106

ISSUE

Are relocation assistance benefits paid by landlords to tenants under a municipal ordinance includible in gross income?

FACTS

Because of a critical shortage of rental housing in city CI, the governing board of CI enacted an ordinance that requires landlords to provide relocation assistance benefits to tenants who are to be evicted from their units because of the conversion of their buildings into condominiums or cooperatives.

The ordinance requires that if a landlord does not elect to provide a tenant with a suitable replacement unit, the landlord must pay the tenant a relocation fee. Certain "qualified tenants", defined as those who are over age 62, or who qualify as being handicapped or disabled, or who reside with one or more minor children must be paid 250x dollars. For all other tenants a landlord must pay a relocation fee of 100x dollars. The relocation fees are designed to assist all tenants in meeting the costs of relocation, higher rents for replacement units, and related expenses.

LAW AND ANALYSIS

Section 61(a) of the Internal Revenue Code provides that except as otherwise provided by law, gross income means all income from whatever source derived.

The Internal Revenue Service has consistently held that disbursements from a general welfare fund made under a legislatively provided social benefit program for the promotion of general welfare are not includible in a recipient's gross income. See, for example, Rev. Rul. 74-205, 1974-1 C.B. 20, concerning replacement housing payments received under the Housing and Urban Development Act of 1968, 1968-2 C.B. 734, and Rev. Rul. 76-373, 1976-2 C.B. 16, concerning relocation payments received under section 105(a)(11) of the Housing and Community Development Act of 1974.

However, the payments in this case are distinguishable from the replacement housing and relocation payments in Rev. Rul. 74-205 and Rev. Rul. 76-373. In those revenue rulings an agency of the federal government makes the payments to qualified recipients. Here, the landlords make the payments to tenants who are to be evicted. Payments made by individuals or other non-governmental entities are not considered payments for the general welfare. Moreover, the payments here in question are not based on need and are not a substitute for payments traditionally made by a governmental entity. Therefore, they do not come within the exemption from taxation for legislatively provided social benefit programs.

HOLDING

The relocation assistance benefits paid in this case by landlords to tenants under a municipal ordinance are includible in the gross income of the tenants under section 61 of the Code.