Question

Which of the following situations will result in an award being excluded from gross income?

a. When the award is a non cash item valued at less than $400, and given for either safety or years of service by an employee
b. When the award has a charitable component, such as a television giveaway, where guests are given needed items
c. When the award is given during the holidays, such as a Christmas cash bonus, since the intent of the award is to be a gift
d. When the award is given for scientific, literary, or charitable achievement and meets certain other requirements

Answer 1

Awards for scientific, literary, or charitable achievements may be excluded from gross income if they meet specific IRS criteria, unlike Christmas bonuses or non-cash employee recognition awards.

Step-by-step explanation:

The situation that will result in an award being excluded from gross income is: When the award is given for scientific, literary, or charitable achievement and meets certain other requirements. According to the IRS regulations, certain awards can be excluded from income if the award is made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, the recipient is selected without any action on their part to enter the contest or proceeding, the recipient is not required to render substantial future services as a condition to receiving the prize or award, and the prize or award is transferred to a government unit or charitable organization.

The exclusions mentioned in the other options do not typically qualify as exceptions to the inclusion in gross income; for instance, Christmas cash bonuses are generally considered to be additional compensation and are subject to income tax, and the value of non-cash items given for employee recognition also must typically be included in gross income unless very specific criteria are met.