Rev. Rul. 69-140

Advice has been requested whether transfers of stock under the circumstances described below constitute gifts within the meaning of section 102 of the Internal Revenue Code of 1954.

A majority stockholder of a corporation transferred some of his stock in the corporation to the employees of that corporation, the number of shares transferred to each employee being dependent on the number of years of service to the corporation.

Section 61 of the Code provides that gross income means all income from whatever source derived, unless specifically excluded by law. Section 102(a) of the Code provides that gross income does not include the value of property acquired by gift. In defining a gift the courts have said that the mere absence of any moral or legal obligation to make a payment does not establish a gift. Old Colony Trust Company v. Commissioner, 279 U.S. 716 (1929), Ct. D. 80, C.B. VIII-2, 222. However, if the payment proceeds primarily from the constraining force of any moral or legal duty, or from the incentive of anticipated economic benefit, it is not a gift. Arthur G. Bogardus v. Commissioner, 302 U.S. 34 (1937), Ct. D. 1281, C.B. 1937-2, 258.

The Supreme Court of the United States, in Commissioner v. Mose Duberstein, et al., 363 U.S. 278 (1960), Ct. D. 1850, C.B. 1960-2, 428, distinguished gifts in the statutory sense from common law gifts. The Court indicated that a voluntary transfer of property, without any consideration or compensation therefor, though a common law gift, is not necessarily a gift within the meaning of the Code.

A gift in the statutory sense, as defined by case law, must proceed from a "detached and disinterested generosity," i.e., out of affection, respect, admiration, charity, or other like impulses. See Commissioner v. Lo Bue, 351 U.S. 243 (1956) Ct. D. 1798, C.B. 1956-2, 967, and Robertson v. United States, 343 U.S. 711 (1952) Ct. D. 1746, C.B. 1952-2, 66. In this regard, the main consideration for determining whether a transfer of property is a gift, is the intention of the parties, principally that of the donor. The intention of the parties is determined by a consideration of all the factors involved in the transfer to determine whether a gift was intended.

In the instant case, the majority stockholder stood to benefit economically from the transfers of stock through the increased initiative in the employees resulting from their ownership of stock in their employer corporation and the number of shares given each employee was based on the number of years of employment by the corporation. These facts indicate that the intent of the transferor was recognition of past services rather than "detached and disinterested generosity."

Accordingly, the shares of stock transferred by the majority stockholder in the instant case are not gifts within the meaning of section 102(a) of the Code. The value of such shares is includible in the gross income of the employees under the provisions of section 61 of the Code.