SI 00830: Unearned Income
TN 112 (09-11)
Citations:
Social Security Act as amended, Section 1612(b)(22) ;
Section 20 CFR 416.1248
A. Introduction
This section provides policy and procedures applicable when a tax-exempt organization gives a gift to a disabled child with a life-threatening condition; specifically when we can and cannot exclude such gifts as income. For information regarding gifts from non-organizational donors, see SI 00830.520.
B. Definitions pertinent to this exclusion
1. Child
Apply this exclusion only to a child who has not attained age 18 and who has a life-threatening condition.
2. In-kind gift
An in-kind gift is any food, shelter, or other item donated to the child or another individual on the child’s behalf. An in-kind gift cannot be cash itself.
3. Benefit of the child
A gift is for the benefit of the child if the giver intends the gift for the use, welfare, or enjoyment of the child. However, the gift still meets the benefit of the child criteria if it benefits more people than just the disabled child; for example, shared electronics like a computer or television or a family trip. Interpret this definition broadly.
4. Section 501(c) (3) tax-exempt organization
Under the Internal Revenue Code, a section 501(c) (3) tax-exempt organization is a corporation, or any community chest, fund, or foundation, organized and operated exclusively:
for religious, charitable, scientific, testing for public safety, literary, or educational purposes; or
to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment); or
for the prevention of cruelty to children or animals.
Neither private shareholders nor individuals may benefit from any part of the net earnings of the organization. A substantial purpose of the organization may not be lobbying or attempting to influence legislation. The organization may not participate in or intervene in any political campaign for or against any candidate for public office. The Internal Revenue Service (IRS) issues certification to organizations that qualify for this exemption. (For how to develop evidence of certification, see SI 00830.750E in this section.)
C. Policy regarding gifts
1. Eligibility for exclusion
Eligibility for the exclusion depends on both the giver of the gift and the recipient. The recipient of the gift must be under age 18 and have a life-threatening condition. The donor must be an organization described in Section 501(c) (3) of the Internal Revenue Code of 1986, which is exempt from taxation under Section 501(a). For more information regarding section 501(c) (3) organizations, see SI 00830.750D.3, in this section.
2. Gifts to exclude from income
Exclude from income the following gifts to, or for the benefit of, a child:
Any in-kind gift, not converted to cash; and
Cash gifts to the extent that the total cash we exclude under this provision does not exceed $2,000 in any calendar year. Cash the individual receives in excess of $2,000 in a calendar year is subject to regular income counting rules. For example, we exclude $2,000 of a $2,500 cash gift and count the remaining $500 as income.
NOTE: For instructions regarding how to determine whether to consider a gift card cash or an in-kind gift, see SI 00830.522.
3. Gifts to count as income
a. Gifts converted into cash
When an individual converts an in-kind gift to cash, determine whether to count the cash as income in the month of receipt of the converted funds based on whether the gift met the criteria to exclude it under a different resource provision. If the gift would not meet the criteria to exclude it under a different resource provision, count the cash as income in the month of receipt of the converted funds. Consider as a countable resource any funds retained into the month following the month of receipt.
Do not apply the $2000 income exclusion (SI 00830.750C.2.) to the converted funds.
EXCEPTION: As noted in SI 00830.750C.4. of this section, apply the income exclusion to the profits from the conversion if other resource exclusions (i.e., auto exclusion, household goods, and personal effects) would have applied to the gift that the individual converted to cash
EXAMPLE: In August 2010, a non-profit organization donates ownership of a timeshare to a child’s payee (on the child’s behalf) with the intention that the payee could take the child on vacation. The timeshare meets the definition of an in-kind gift. Do not count the value of the timeshare ($15,000) as income to the child in the month the payee received it on the child’s behalf (August 2010).
In December 2010, the payee sells the timeshare for $15,000 and uses the profits to pay off bills related to the child's medical condition. Count the cash received from the sale as income to the child in the month of conversion. If the payee retains the cash in the month after the conversion (rather than paying off child’s the medical bills), count the cash as a resource.
NOTE: Apply the infrequent or irregular income exclusion to the profits from the conversion if they meet those provisions. (For infrequent or irregular income exclusion information see SI 00810.410.)
b. Multiple cash gifts in the same calendar year
A child may receive multiple cash gifts in the same calendar year. Add the individual value of each cash gift together and exclude the total up to the $2,000 total value (per SI 00830.750C.2.a.). Count the excess value of the cash gifts as income to the child in the month the child receives it, only after it exceeds the $2,000 threshold.
EXAMPLE: A child receives several cash gifts totaling $2,500 over the course of a calendar year. Exclude $2,000 from income and count the remaining $500 as income in the month(s) of receipt. Count the remaining cash gifts as a resource if the payee retains them into the following month.
4. Exclude from income funds from conversion of certain gifts
If the gift met the criteria for you to exclude it under a different resource provision (i.e. auto exclusion), exclude from income the funds received when the payee converts the gift to cash.
NOTE: This policy is in place to prevent differing treatment of converted excluded resources depending on their source. For example, per SI 00815.550, an excluded resource that was an in-kind gift from a family member would not be income if the payee converted it to cash.
EXAMPLE: A nonprofit agency donates a car to the family of a child with a life-threatening condition so the family may transport the child for weekly medical care to a city 200 miles away. This is the family’s only vehicle. The family sells the car and moves to the treatment city. Do not count the cash the family received from the sale of the car as income. We originally excluded the car under this “Gifts to Children with Life-Threatening Conditions” provision, but we could also have excluded it from resources under the automobile exclusion. Treat any cash the family retains into the following month as a resource. (For information on receipt from the sale of certain non-cash items, see SI 00815.550.)
5. Effective date of this provision
Apply this provision to gifts received on or after 10/28/96.
6. How deeming relates to the exclusion
Exclude a gift to a parent whose income is subject to deeming (subject to the limits in SI 00830.750C.2.) if the gift is for the benefit of a child described in SI 00830.750B.2.
EXAMPLE: The parents receive a trip to Disney World to accompany their child and the child’s trip is excludable under this provision. The parents’ portion of the gift benefits the child to the extent that it allows the parents to accompany him, provide supervision, support, companionship, etc.
7. Gifts to exclude from resources
Exclude from resources those gifts excluded from income in this section. For complete instructions regarding how to treat gifts to children with life- threatening conditions as resources, see SI 01130.689.
8. Interest and dividends
Do not exclude from income or resources any interest or dividends earned on funds excluded by this provision.
D. Procedure for documenting gifts and life-threatening conditions
1. Documentation of the gift
Document the individual's allegation of receipt of a gift as described in this section by noting:
date of receipt;
amount or value of gift;
type of gift (cash or in-kind) and if in-kind, what it is specifically; and
tax-exempt donor organization’s name, address and phone number.
Document all of the information on a Report of Contact (DROC), as well as any other material evidence submitted by the tax-exempt donor organization. (For more information on how to document evidence, see GN 00301.286 and MSOM EVID 001.003.)
2. Modernized Supplemental Security Income Claims System (MSSICS) screens
Complete the appropriate MSSICS screens (e.g., IOTH) related to the type of gift received. Code the exclusion reason with the tax-exempt donor organization’s name.
3. Documentation of the life-threatening condition(s)
Accept an oral or written statement from the organization that it gave the gift to or on behalf of the child based on the child having a life-threatening condition; no additional medical development is necessary. Annotate a DROC with this information and lock it.
E. Procedure for verifying tax-exempt status of donor organizations
A gift from a tax-exempt organization requires proof of the organization’s current tax-exempt status from the IRS.
1. Precedent exists for organization
Determine if the non-profit donor is an IRS-approved tax-exempt organization by entering the name of the organization and searching the Atlanta Precedent and Contacts (APAC) intranet site: http://atlcfapps.bi.ssa.gov/APAC/
If a precedent exists, and the provisions of this section apply to the gift, create a DROC noting APAC precedent as proof of the organization’s tax-exempt status and lock it.
2. To create a precedent
If no precedent exists, contact the donor organization and request that they fax or send a copy of its state nonprofit certification or its determination letter from the IRS.
When evidence is in hand:
Note the date the state nonprofit certification or determination letter from the IRS was received on a DROC and lock it;
Fax the evidence into Eview or NDReD; and
Go to the APAC intranet site and follow the steps listed there to create a national precedent. To create the precedent, categorize the contact type as “non-profit organization” and the precedent type as “IRS tax-exempt certification.”
3. Verify the organization’s tax-exempt status if it is questionable
a. Confirm tax-exempt status with the IRS
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If evidence indicates the organization’s tax-exempt status has been revoked, go to the IRS web site and review both the current lists of organizations from which the IRS has revoked tax-exempt status at:
If the donor organization appears on this site, note the date the IRS revoked the tax-exempt status on a DROC and take steps described in SI 00830.750E.3.b. in this section.
b. Organization lost its tax-exempt status
If the organization lost its tax-exempt status, do not apply the income exclusion described in this section to the gift. Count the gift as unearned income in the month of receipt and as a resource in the following month. (For policy and procedures regarding gifts from any organization that is not tax-exempt, see SI 00830.520 and for more on the resource exclusion for “Gifts to Children with Life-Threatening Conditions” see SI 01130.689.)
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Document on a DROC:
The date the organization was added to the IRS “Revocations” list;
The source of this information; and
That the “Gifts to Children with Life-Threatening Conditions” income exclusion does not apply because the donor organization is not tax-exempt per IRS records, and lock the DROC.
F. Examples of how to treat the types of gifts children may receive
1. Benefit of the Child
The Make-A-Wish Foundation provides a trip to Walt Disney World to a terminally ill child. The trip includes all expenses for the child, his parents and his sister; e.g., transportation, food and lodging, and $1,500 for other expenses. Exclude the entire gift from income and resources, even the portion that allows the parents and sister to accompany the child. The parents provide supervision and assistance to the child, which allows him to take the trip. The primary benefit of the parents’ participation in the trip is to facilitate the eligible child's enjoyment of the vacation.
2. Multiple Gifts
From December 2010 to January 2011, three separate tax-exempt organizations provide cash gifts to a terminally ill child.
The first organization gives $1,800 to the payee, for the child’s benefit, on December 11, 2010;
The second gives $500 on December 21, 2010; and
The third gives the child $880 January 2, 2011.
The child received $1,800 + $500 = $2,300 total in December 2010. We exclude $2,000 of the $2,300 per SI 00830.750C.3.c. The remaining $300 is countable income in December 2010.
NOTE: We count the $880 the child received on January 2, 2011 toward a new $2,000 annual income exclusion threshold because the payee received the money in a new calendar year. However, regard any funds received and excluded as income in December, that are still in the payee’s possession as of January 1, 2011, as a resource. If by January 1, 2011 the payee has not spent any of the $2,300 that he or she received in December 2010, we exclude only the first $2,000 under the resource exclusion and count the remaining $300 as a resource. (For more on the resource exclusion for “Gifts to Children with Life-Threatening Conditions,” see SI 01130.689.)
G. References
GN 00301.286 Electronic Evidence Documentation and Retention
SI 00520.800 Facility Determinations
SI 00810.410 Infrequent or Irregular Income Exclusion
SI 00815.550 Receipt of Certain Noncash Items
SI 00830.500 Interest income
SI 00830.520 Gifts
SI 01130.689 Resource exclusion, Gifts to Children With Life-Threatening Conditions
MSOM EVID 001.003 Evidence Screen (EVID)