Sharon had some insider information about a corporate takeover. She unintentionally informed a friend, who immediately bought the stock in the target corporation. The takeover occurred and the friend made a substantial profit from buying and selling the stock. The friend told Sharon about his stock dealings, and gave her a pearl necklace because she "made it all possible." The necklace was worth $10,000, but she already owned more jewelry than she desired.

Question

Quizplus · Accepted Answer

According to the IRS, the value of a gift must be included in the recipient's income for the year it was received, regardless of whether or not the giver was legally required to make the gift. The fact that the information was passed illegally does not affect the taxability of the gift. Therefore, Sharon must include the value of the pearl necklace in her gross income for the year it was received.

Sharon Had Some Insider Information About a Corporate Takeover