DIVIDEND PAYMENTS MADE BY THE STATE OF ALASKA ARE INCLUDIBLE IN GROSS INCOME

Rev. Rul. 85-39

ISSUE

Are "dividend payments" made by the State of Alaska pursuant to Alaska Statutes section 43.23 (1983) includible in gross income under section 61 of the Internal Revenue Code?

FACTS

Alaska adopted a constitutional amendment in 1976 that established a permanent fund into which the State must deposit at least 25 percent of its mineral income each year. Alaska Const., Art. IX, section 15. In 1980, the Alaska State legislature enacted a statute establishing a dividend program to distribute annually a portion of the fund's earnings directly to the State's adult residents. As stated in section 1 of the 1980 statute, the purposes of the statute are threefold. The statute is to provide a mechanism for equitably distributing to the people of Alaska a portion of the State's energy wealth, to encourage increased awareness and involvement by the residents of the State in the management and expenditure of the fund, and to encourage persons to maintain their residence in Alaska and to reduce population turnover. The Alaska legislature found that the constant turnover in the population led to political, economic, and social instability and was harmful to the State. They also found that it was in the public interest of the State to promote a stable population by providing an incentive to encourage Alaskans to maintain their residency in the State.

The legislature amended section 2 of the statute in 1982 to revise the eligibility requirements for receiving distributions. Section 1, stating the purpose of the Act, was not amended. The statute as amended provides a dividend payment each year to eligible individuals who apply prior to a specific date. Generally, eligible individuals are State residents who have resided in the State for at least six consecutive months immediately preceding the date of application for the dividend. A State resident is an individual who is physically present in the State with the intent to remain permanently in the State or, if the individual is not physically present in the State, intends to return to the State.

LAW AND ANALYSIS

Section 61 of the Code and the Income Tax Regulations thereunder provide that gross income means all income from whatever source derived unless excluded by law.

Section 102 of the Code provides that gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.

Although certain payments made under legislatively provided social benefit programs for promotion of the general welfare are not includible in a recipient's gross income, Rev. Rul. 76-131, 1976-1 C.B. 16, holds that bonus payments received by Alaska residents under the Alaska Longevity Bonus Act income pursuant to section 61 of the Code. That Act, the stated purpose of which was to provide an incentive to residents to continue uninterrupted residence in the State, is distinguishable from general welfare program payments because the bonus is payable to a State resident regardless of financial status, health, educational background, or employment status.

The United States Supreme Court in Commissioner v. Duberstein, 363 U.S. 278, 285 (1960), 1960-2 C.B. 428, held that a gift, in the statutory sense, proceeds from a detached and disinterested generosity out of affection, respect, admiration, charity, or like impulses. Although the donor's intent is the most critical factor, the donor's characterization of his or her actions is not determinative. The determination must be based on the totality of the facts in each case. The absence of a legal or moral obligation to make a payment does not necessarily establish that the payment is a gift. However, if a payment does proceed from the constraining force of any moral or legal duty, or from the incentive of an anticipated benefit beyond the satisfaction that flows from the performance of a generous act, it does not constitute a gift.

The dividend payments made by the State of Alaska pursuant to section 43.23 of the Alaska statutes are not general welfare program payments. The payments are not restricted to those in need. There is no indication of a legislative intent that would support their characterization as gifts. As stated expressly in the statute, the State anticipates a benefit from making the payment, namely a reduced population turnover resulting in a more stable political, economic, and social environment.

HOLDING

Dividend payments made by the State of Alaska pursuant to section 43.23 of the Alaska statutes are includible in gross income under section 61 of the Code.