Rev. Rul. 59-5

Advice has been requested as to the treatment, for Federal income tax purposes, of contributions to and benefits derived from a private unemployment fund.

In the instant case, a private unemployment fund was established. Membership in the fund is limited to individuals engaged in a particular type of occupation. However, the fund was not established by a trade union. Participating members pay certain amounts into the fund, depending on the type of membership desired, and in the event of unemployment receive specified cash payments depending on their class of membership.

Section 61(a) of the Internal Revenue Code of 1954 provides, in part, that `except as otherwise provided in this subtitle, gross income means all income from whatever source derived, * * *.' In Commissioner v. Glenshaw Glass Company et al. , 348 U.S. 426, Ct.D. 1783, C.B. 1955-1, 207, the Supreme Court of the United States in referring to the broad scope of section 22(a) of the Internal Revenue Code of 1939, which is substantially similar to section 61 of the 1954 Code, pointed out that Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature.

Revenue Ruling 57-383, C.B. 1957-2, 44, involving a situation similar to that in the present case, holds that unemployment benefits derived from a union established fund, contributed to by members of a trade union, constitute gross income to the recipient to the extent they exceed contributions made by him to the fund, and that amounts paid into the fund by members are not deductible.

In the absence of any provision in the Code which expressly excludes unemployment benefits derived from private sources from Federal income taxation, the rationale of the above-cited case and Revenue Ruling is applicable in the instant case.

In the instant case, each member must contribute to the fund an amount in relation to the benefits which he desires ultimately to receive. Therefore, the benefits, when received, do not constitute amounts gratuitously paid or received so as to be considered gifts within the meaning of section 102 of the Code. See Revenue Ruling 54-190, C.B. 1954-1, 46.

Accordingly, it is held that unemployment benefits derived from a private fund, as distinguished from a union established fund, established and contributed to by members who receive the benefits of such fund, constitute gross income to the member when received to the extent they exceed the amount which the member personally contributed to the fund. Further, contributions to the fund are not deductible, for Federal income tax purposes, by the contributors.