(a) General rule
Except as otherwise provided in this section or in section 117
(relating to qualified scholarships), gross income includes amounts
received as prizes and awards.
(b) Exception for certain prizes and awards transferred to
Gross income does not include amounts received as prizes and
awards made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary, or civic achievement,
but only if -
(1) the recipient was selected without any action on his part
to enter the contest or proceeding;
(2) the recipient is not required to render substantial future
services as a condition to receiving the prize or award; and
(3) the prize or award is transferred by the payor to a
governmental unit or organization described in paragraph (1) or
(2) of section 170(c) pursuant to a designation made by the
(c) Exception for certain employee achievement awards
(1) In general
Gross income shall not include the value of an employee
achievement award (as defined in section 274(j)) received by the
taxpayer if the cost to the employer of the employee achievement
award does not exceed the amount allowable as a deduction to the
employer for the cost of the employee achievement award.
(2) Excess deduction award
If the cost to the employer of the employee achievement award
received by the taxpayer exceeds the amount allowable as a
deduction to the employer, then gross income includes the greater
(A) an amount equal to the portion of the cost to the
employer of the award that is not allowable as a deduction to
the employer (but not in excess of the value of the award), or
(B) the amount by which the value of the award exceeds the
amount allowable as a deduction to the employer.
The remaining portion of the value of such award shall not be
included in the gross income of the recipient.
(3) Treatment of tax-exempt employers
In the case of an employer exempt from taxation under this
subtitle, any reference in this subsection to the amount
allowable as a deduction to the employer shall be treated as a
reference to the amount which would be allowable as a deduction
to the employer if the employer were not exempt from taxation
under this subtitle.
(4) Cross reference
For provisions excluding certain de minimis fringes from
gross income, see section 132(e).