Clear IRS definition of cash equivalent?

[BulldogTom]

I know that a gift card is a cash equivalent in the eyes of the IRS.   But I can't find a pub or regulation that clearly states that.   My research is taking me to sections 132 and 3121, but it is convoluted.   I am trying to explain this to a non-tax professional and they are asking me to show them something in the code that says "gift cards are equal to cash in the eyes of the IRS".

Any help appreciated.

Tom
Modesto, CA

[ILLMAS]

Show them this and tell them not to waste your time Tom.

 

https://taxfoundation.org/irs-guidance-thieves-drug-dealers-and-corrupt-officials/

[Max W]

Are we talking about Gift Cards from a business to an individual. or from an individual to an individual?

[Lee B]

See Pub 5137

A gift certificate for a specific item may be de minimus and not a cash equivalent..

A gift card with cash face value which can be used to purchase different items is a cash equivalent.

[BulldogTom]

40 minutes ago, Max W said:

Are we talking about Gift Cards from a business to an individual. or from an individual to an individual?

Business to an individual.   A company gives gift cards as prizes.   Thinks they are not cash prizes.   I told him they are cash equivalents because they have a cash value that is readily determined.   It is printed on the damn card.   Wants proof the IRS considers gift cards the equivalent of cash.   This is stupid, I know.   But the only thing I could find is in the definition of de minimis fringes that are not de minimis.   I don't know why I am even trying.   I know this, everybody knows this.   How did I get myself into this mess?

Tom
Modesto, CA

[Max W]

Maybe this will help.  BTW if it is a small amount under $50, I wouldn't argue with the client just to prove a point.  You might lose them. If it is more make sure he signs a note they you advised it was taxable income.     Those things are either to be added to the W-2, or 1099 depending on the circumsatnces.  Double check the W-2.

This is one of the things some businesses do to try and hide bonus payments.

https://support.creditkarma.com/s/article/Are-prizes-and-awards-taxable-US

[Margaret CPA in OH]

Okay, I had this issue with my church when i was treasurer.  In Church & Clergy Tax Guide this is addressed but it applies to all employees.  IRS Letter Ruling 200437030 (2004) suggests that the assumption that small amounts of cash or gift certificates are not the same as hams, turkeys, fruit baskets, etc. commonly given as gifts.  The IRS ruled that these coupons represented taxable income that should have been added to the employees' Form W-2.  It rejected the argument that the coupons were a de minimis fringe benefit (i.e., so low in valur that they could be ignored for tax purposes).

The IRS conceded that taxable income does not include any fringe benefit that qualifies as a de minimis fringe benefit.  Section 132(e)(1) of the tax code defines a de minimis fringe benefit as "any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impractical."

The IRS concluded that cash can never be a de minimis fringe benefit, since it is not "unreasonable or administratively impracticable" to account for its value. The same conclusion applies to cash equivalents, such as gift coupons, even though the property acquired with the coupon would be a nontaxable de minimis fringe benefit had it been provided by the employer.

Further, the definition of de minimis fringe benefits in Sec. 132 refers only to 'property or services' and not to cash. The regs provide several examples of de minimis fringe benefits and none involves cash. It is not administratively impracticable to account for even a small amount of cash because the value is readily apparent.

I could go on but am tired of typing.  I suggest looking up the Letter Ruling above and Sec. 132.  I hope this is enough.  There were many examples listed but I don't want to type them all. 

 

[DANRVAN]

AMERICAN AIRLINES INC. v. U.S.looked at lack of restrictions on transfer and use of cards in determining that they were cash equivalents.