Rev. Rul. 57-383

Advice has been requested regarding the treatment, for Federal income tax purposes, of certain unemployment benefits received by members of a union while they are separated from their jobs. The question has arisen because of some apparent inconsistency of treatment of such payments between I.T. 1293, C.B. I-1, 63 (1922), and I.T. 1918, C.B. III-1, 121 (1924).

In the instant case, in accordance with a plan initiated by a union, a fund was established for the purpose of providing unemployment benefits for the union members who are separated from their jobs due to disciplinary action by their employers. Those members disiring to participate pay certain amounts into the fund, depending upon the type of membership desired, and receive corresponding benefits, under specified conditions. The payments made into the fund are separate and apart from payments otherwise made by the members as union dues. The specific question presented is whether any unemployment benefits received by a member constitutes taxable income and, if so, to what extent.

I.T. 1293, supra , holds that amounts paid by an organized labor union as unemployment benefits to its unemployed members are required to be included in the gross income of the recipients. This holding was premised upon a factual situation wherein such unemployment benefits paid to the union members came out of union dues and not out of any special payments otherwise made by the members for such purposes. Also see Rev. Rul. 57-1, C.B. 1957-1, 15. Since union dues are deductible for Federal income tax purposes as business expenses, to allow a tax-free recovery of such payments would, in effect, allow a double deduction not permitted by the Code. O.D. 450, C.B. 2, 105 (1920).

I.T. 1918, supra , holds that amounts paid by employees into a fund, established pursuant to an agreement between manufacturers and workers, to provide benefits for such employees as contribute to it, who are involuntarily thrown out of employment, do not constitute allowable deductions. Any benefits paid to the employee from the fund in excess of the amounts which he has contributed will be includible in his gross income in the year of receipt. This holding was premised upon a factual situation wherein special provision was made for contributions to a fund byn both union members, who were employees of the corporation, and the corporation. These payments made by union members to the fund were in no way connected with the amount of regular union dues. The recipient was allowed to recover his cost since such recovery was not contrary to the Code or regulations. Thus, on the facts, there is no conflict between I.T. 1293, supra , and I.T. 1918, supra .

The situation involved in the instant case is more analogous to that described in I.T. 1918, supra , since in both plans a separate fund was established to provide such benefits and the union members paid amounts into the fund specifically for such purposes. Thus, applying the rationale in I.T. 1918, it is held that (1) such amounts paid by the members into the fund are not deductible for Federal income tax purposes and (2) amounts received as benefits under the plan are includible in the gross income of the recipient to the extent they exceed the payments made into the fund by him.

The fund is required, under section 6041 of the Internal Revenue Code of 1954, to file information returns (Forms 1096 and 1099) reporting the amount includible in the gross income of each recipient where the amount of such payments, when added to any other payments of compensation to the employee, aggregate $600 or more during any calendar year.