Cornell is a building contractor who builds 25-30 homes a year. Charlotte is a real estate broker who sells all of Cornell's homes. Charlotte has recently referred a couple to Cornell who wanted him to build a $400,000 home for them. Knowing that Charlotte and her husband enjoy skiing, he bought her a nice pair of skis and boots.
I.The "gift" appears to be a form of compensation.
II.The skis are considered a gift for income tax purposes.
III.Substance-over-form applies to this situation.
IV.Charlotte recognizes gross income from the receipt of the skis.

Question

Cornell is a building contractor who builds 25-30 homes a year. Charlotte is a real estate broker who sells all of Cornell's homes. Charlotte has recently referred a couple to Cornell who wanted him to build a $400,000 home for them. Knowing that Charlotte and her husband enjoy skiing, he bought her a nice pair of skis and boots.
I.The "gift" appears to be a form of compensation.
II.The skis are considered a gift for income tax purposes.
III.Substance-over-form applies to this situation.
IV.Charlotte recognizes gross income from the receipt of the skis.
​

Quizplus · Accepted Answer

The skis and boots given to Charlotte by Cornell can be seen as a form of compensation for referring the couple to him, which means it's not merely a gift in the casual sense. The principle of substance-over-form applies here, indicating that the nature of the transaction is more important than its formal description. Therefore, Charlotte would need to recognize the value of the skis and boots as gross income, as they are considered compensation for her services.

Cornell Is a Building Contractor Who Builds 25-30 Homes a Year