CCA explains when social-benefit payments are excluded from gross income

Plain-English summary

Chief Counsel Advice considers whether payments under legislatively provided social-benefit programs, including programs involving work activities, are included in recipients' gross income. It states that payments made to promote the general welfare and not representing compensation for services are not includible, but that whether work-related payments are compensation is a factual question. The memorandum also says that the analysis should consider whether payments substitute for need-based welfare benefits that recipients would otherwise qualify to receive. It does not address a particular program without enough factual background.

Ruling snapshot

• Question: Are payments under a legislatively provided social-benefit program included in a recipient's gross income?
• Outcome: Advice given, the memorandum identifies the general-welfare and factual analyses but does not decide a particular program.
• Key authorities: IRC § 61; Rev. Ruls. 71-425 and 75-246; IRC § 6110(k)(3).

Full text (IRS public release)

ID: CCA_2009061809403532 Number: 200929007
Release Date: 7/17/2009
Office: -----------------------------
UILC: 61.00-00

From: --------------------
Sent: Thursday, June 18, 2009 9:40:40 AM
To: -----------------------
Cc: ---------------------
Subject: RE: ARRA Funds

----------- I asked for clarification. This is what came back:

We have consistently held that payments made under legislatively provided social benefit programs for the promotion of the general welfare, that do not represent compensation for services, are not includible in a recipient's gross income. The principal question is whether the payments represent 'payments for services' where work activities are required. Numerous Revenue Rulings, including the cited Revenue Ruling 75-246, clearly illustrate that not all payments made in connection with the performance of work activities represent payment for services; making the determination is a factual matter. Under the rationale of Revenue Ruling 71-425, in cases where services are performed, a determination needs to be made as to whether the payments are in lieu of welfare payments that these individuals would otherwise be eligible to receive because they meet need-based criteria (they are low-income, disabled, economically disadvantaged, unemployed, underemployed etc.).

I'm not aware that we have addressed any particular AARA program. However, if a particular state asks us to address their program, or if -------- wants advice on a specific case, --------will be happy to address it if there is enough factual background information provided to make a determination. Hope this is helpful.

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