
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC74]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
          PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
 
Sec. 74. Prizes and awards


(a) General rule

    Except as otherwise provided in this section or in section 117 
(relating to qualified scholarships), gross income includes amounts 
received as prizes and awards.

(b) Exception for certain prizes and awards transferred to charities

    Gross income does not include amounts received as prizes and awards 
made primarily in recognition of religious, charitable, scientific, 
educational, artistic, literary, or civic achievement, but only if--
        (1) the recipient was selected without any action on his part to 
    enter the contest or proceeding;
        (2) the recipient is not required to render substantial future 
    services as a condition to receiving the prize or award; and
        (3) the prize or award is transferred by the payor to a 
    governmental unit or organization described in paragraph (1) or (2) 
    of section 170(c) pursuant to a designation made by the recipient.

(c) Exception for certain employee achievement awards

                           (1) In general

        Gross income shall not include the value of an employee 
    achievement award (as defined in section 274(j)) received by the 
    taxpayer if the cost to the employer of the employee achievement 
    award does not exceed the amount allowable as a deduction to the 
    employer for the cost of the employee achievement award.

                     (2) Excess deduction award

        If the cost to the employer of the employee achievement award 
    received by the taxpayer exceeds the amount allowable as a deduction 
    to the employer, then gross income includes the greater of--
            (A) an amount equal to the portion of the cost to the 
        employer of the award that is not allowable as a deduction to 
        the employer (but not in excess of the value of the award), or
            (B) the amount by which the value of the award exceeds the 
        amount allowable as a deduction to the employer.

    The remaining portion of the value of such award shall not be 
    included in the gross income of the recipient.

                (3) Treatment of tax-exempt employers

        In the case of an employer exempt from taxation under this 
    subtitle, any reference in this subsection to the amount allowable 
    as a deduction to the employer shall be treated as a reference to 
    the amount which would be allowable as a deduction to the employer 
    if the employer were not exempt from taxation under this subtitle.

                         (4) Cross reference

            For provisions excluding certain de minimis fringes from 
        gross income, see section 132(e).

(Aug. 16, 1954, ch. 736, 68A Stat. 24; Pub. L. 99-514, title I, 
Secs. 122(a)(1), 123(b)(1), Oct. 22, 1986, 100 Stat. 2109, 2113.)


                               Amendments

    1986--Subsec. (a). Pub. L. 99-514, Sec. 123(b)(1), which directed 
that subsec. (a) be amended by substituting ``(relating to qualified 
scholarships)'' for ``(relating to scholarship and fellowship grants)'', 
was executed by making the substitution for ``(relating to scholarships 
and fellowship grants)'' to reflect the probable intent of Congress.
    Pub. L. 99-514, Sec. 122(a)(1)(A), substituted ``Except as otherwise 
provided in this section or'' for ``Except as provided in subsection (b) 
and''.
    Subsec. (b). Pub. L. 99-514, Sec. 122(a)(1)(B), (C), inserted ``for 
certain prizes and awards transferred to charities'' in heading and 
added par. (3).
    Subsec. (c). Pub. L. 99-514, Sec. 122(a)(1)(D), added subsec. (c).


                    Effective Date of 1986 Amendment

    Amendment by section 122(a)(1) of Pub. L. 99-514 applicable to 
prizes and awards granted after Dec. 31, 1986, see section 151(c) of 
Pub. L. 99-514, set out as a note under section 1 of this title.
    Amendment by section 123(b)(1) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, but only in the case of 
scholarships and fellowships granted after Aug. 16, 1986, see section 
151(d) of Pub. L. 99-514, set out as a note under section 1 of this 
title.


Applicability of Certain Amendments by Public Law 99-514 in Relation to 
                   Treaty Obligations of United States

    For nonapplication of amendment by section 123(b)(1) of Pub. L. 99-
514 to the extent application of such amendment would be contrary to any 
treaty obligation of the United States in effect on Oct. 22, 1986, see 
section 1012(aa)(3) of Pub. L. 100-647, set out as a note under section 
861 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 102, 274, 3121, 3231, 3306, 
3401, 4941, 4945 of this title; title 42 section 409.
