Tax Research 4 66 Essay

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Bold Corporation wants to pay $25 to each full-time employee in recognition of the holidays. The issue is whether the amounts are taxable income to its employees and whether the Bold Corporation can deduct the amounts.
The case in question is Hallmark Cards Inc. v. United States of America. In this case Hallmark, the plaintiff, normally had a Christmas party every year. Hallmark plants were located throughout the country with their main hub located in Kansas City, Missouri. Based on the high number of people living outside of Kansas City who wanted to drive home for the holidays, the parties became unsatisfactory. Also, the gift of a turkey was not desirable since many employees were unmarried. Therefore, the plaintiff started a special gift certificate plan in 1955. This plan consisted of a $25 certificate for full-time employees and $15 for part-time employees. These certificates could be redeemed for merchandise at any store that sold Hallmark products. Salesmen did not receive a gift certificate because of the different financial arrangement that consisted with the company. Tax on the value of the certificates was not withheld from the wages or salary by the plaintiff. Furthermore, the plaintiff took credit on tax returns for the amounts of the certificates. Hallmark is looking to recover the tax amount that they paid.
The facts in the Hallmark case are pretty simple. The general rule is gross income does not include the value of property acquired by gift, bequest, devise or inheritance. The company pays employees wages for services performed by the employees. Hallmark’s intention was to give the certificates as gifts and not a part of wages. According to Rev. Rul. 59-58 C.B. 59-1 “In view of the small amounts involved, and since it may reasonably be contended in many cases that such items constitute excludable gift, it is similarly held that the value of such an item of merchandise need not be treated as taxable income by the employees who receive it”. Keep in mind that the certificates could not be redeemed for cash, but only for merchandise. The gifts were given to promote health, good will, or contentment to every employee for the same amount based on their employment status. Salesmen did not receive a certificate nor did they receive an invitation to the Christmas parties. The certificates were also considered relatively small amounts. These are the reasons why the court in favor of Hallmark and were not subject to withholding tax.
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