Final answer:
Intent plays a crucial role in determining whether a transfer is a gift and exempt from income tax. Tips received by employees are not considered gifts and are taxable as part of their gross income.
Step-by-step explanation:
The role of intent in determining whether a transfer is a gift and therefore not subject to income tax is crucial. Under the federal tax law, for a transfer to be considered a gift, it must be made with the intent to benefit the recipient and without any expectation of compensation or return. The donor's intent is assessed based on various factors, such as the relationship between the donor and recipient, the nature of the transfer, and any accompanying documentation or statements.
Tips received by employees from customers are generally not considered gifts and are taxable as part of the employee's gross income. Unlike gifts, tips are given in the context of a business transaction and are expected as a form of compensation for the services provided by the employee. Therefore, they are subject to income tax.