Rev. Rul. 57-1

The Internal Revenue Service has been requested to reconsider the position it stated in O.D. 552, C.B. No. 2, 73 (1920), which holds that strike benefits received by a member of a labor union are includible in his gross income for the year during which received. A similar position was taken in I.T. 1293, C.B. I-1, 63 (1922), to hold that amounts paid by an organized union as unemployment benefits to its unemployed members are includible in the gross income of the recipients.

Members of a labor union pay dues to the union, a portion of which is laid aside in a special fund to be used in case of a strike or lockout. Strike benefits are paid according to individual need and have no correlation to the amount of dues paid by the recipient, or to the amount of benefits received by other members. The strike benefit payments, which are not paid pursuant to any contract, are paid to members as well as nonmembers of the union. Presumably, any benefits to nonmembers are equally in furtherance of the objectives of the strike. The specific question presented is whether the strike benefit payments paid under the above circumstances constitute income or whether they are tax free gifts to the recipients.

Section 61 of the Internal Revenue Code of 1954 states that `Except as otherwise provided in this subtitle, gross income means all income from whatever source derived * * *.' This section has the same breadth of scope as section 22(a) of the Internal Revenue Code of 1939 and executes the mandate of the 16th Amendment to the Constitution. See U.S. Senate Report No. 1622, 83rd Congress, 168. For a recent reiteration of this principle, see Commissioner v. Glenshaw Glass Company et al. , 348 U.S. 426, Ct. D. 1783, C.B. 1955-1, 207. As pointed out by the Court in that case, Congress applied no limitation as to the source of taxable receipts, nor restrictive labels as to their nature.

Strike benefit payments are included within the broad definition of gross income and do not fall within any of the exclusions provided for in the Code, including the exclusions for gifts under section 102. They are paid only upon the event of a strike which is a means employed by the union and its members for securing economic benefits, and, for this reason, they do not constitute amounts gratuitously paid or received. The determination that strike benefit payments are includible in gross income is not affected by the fact that such payments may take the form of staple goods which are distributed on the basis of need or the fact that such payments or distributions are also made to persons who are not members of the union.

The above position does not conflict with I.T. 3230, C.B. 1938-2, 136, wherein unemployment compensation benefits, paid by a state agency from funds withdrawn from the Federal Unemployment Trust Fund pursuant to Title IX of the Social Security Act, were not considered as taxable income, or I.T. 3447, C.B. 1941-1, 191, wherein benefits under the Social Security Act were held not subject to taxation. The benefits in these cases were held not to constitute taxable income because it was believed that Congress intended that such benefits be not subject to tax. However, there is no evidence that Congress intended to exclude strike benefits from income. Nor does the above position conflict with S.S.T. 247, C.B. 1938-1, 449, wherein it was held that strike benefits do not constitute `wages' for the purposes of the Social Security Act, since such benefits do not constitute remuneration for services paid by an employer to an employee. Consistent with the holding therein made, it is held that strike benefits do not constitute wages paid by the union to its members for purposes of income tax withholding and the taxes imposed by the Federal Insurance Contributions Act and the Federal Unemployment Tax Act. Such benefits are nevertheless income and, as such, are includible in gross income for Federal income tax purposes.

Revenue Ruling 131, C.B. 1953-2, 112, which holds that disaster benefits provided by an employer for his employees are not taxable income, is also distinguishable from the instant situation. That Revenue Ruling stated, in part, `such contributions, measured solely by need, are considered gratuitous and spontaneous.' Such situation does not exist in the instant case since the payments made are neither spontaneous not primarily donative in character but are made in furtherance of a strike, which is a means employed to secure legitimate economic benefits for members of the union.

Revenue Ruling 54-190, C.B. 1954-1, 46, holds that noncontractual payments made out of a union fund are nevertheless taxable to the recipient union members. In that ruling, the pensions paid to the members were directly attributable to their employment while members of the union as well as to their payment of union dues. The pensions could not be said to be paid to them without consideration and, therefore, were not gifts.

Accordingly, the strike benefit payments received under these circumstances do not constitute gifts but constitute income and are includible in the gross income of the recipients even though distributed on the basis of their need and regardless of whether the recipients are members or nonmembers of the union. If the benefits are paid in goods rather than cash, the fair market value of the goods at the time received is the amount to be included in gross income.