Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-13

1973-1 C.B. 42

Sec. 61
Sec. 212

IRS Headnote

Financial counseling fees paid by a corporation for the benefit of its executives are includible in the executives' gross income and are subject to FICA, FUTA and income tax withholding; further, to the extent such fees are for tax or investment counseling, they are deductible by the executives under section 212 of the Code.

Full Text

Rev. Rul. 73-13

Advice has been requested whether the value of financial advice furnished a corporate executive under the circumstances described below is includible in his gross income under section 61 of the Internal Revenue Code of 1954.

A taxpayer, an executive of a large corporation, was provided financial counseling by a professional financial counseling firm that was engaged by the corporation for the purpose of providing certain of its employees earning large salaries with advice concerning the handling of their personal financial affairs.

The service provided by the counseling firm includes advice on investment, insurance, real estate, tax planning, preparation of tax returns, retirement benefits, and estate planning. The cost of the service is paid for by the corporation, on behalf of the taxpayer, and, with respect to the taxpayer in the instant case, amounted to $3,000.

Section 61(a) of the Code defines gross income as income from whatever source derived, unless excluded by other provisions of the Code. It specifically includes compensation for services. Section 1.61-2(d)(1) of the Income Tax Regulations provides that if services are paid for other than in money, the fair market value of the property or services taken in payment must be included in income.

It is well established that gross income is not limited to cash received, but may also include the fair market value of property received. In Commissioner v. Glenshaw Glass Company, 348 U.S. 426 (1955), Ct. D. 1783, 1955-1 C.B. 207, the Supreme Court of the United States recognized that Congress in defining gross income intended to exert the full measure of its taxing power and to tax all gains without limitation as to their source, except those specifically exempted.

In Commissioner v. John H. Smith, 324 U.S. 177 (1945), Ct. D. 1633, 1945 C.B. 49, a case dealing with the taxability of a stock option, the Court stated that section 22(a) of the Revenue Act of 1938 [predecessor of section 61 of the 1954 Code] "is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected."

Accordingly, it is held that the $3,000 paid by the corporation to furnish financial counseling to the taxpayer in the instant case is compensation for services, and is includible in his gross income under section 61 of the Code.

Sections 3121(a) and 3306(b) of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively, define the term "wages," with certain exceptions not material here, as "all remuneration for employment." Section 3401(a) of the Code, relating to the withholding of income tax, contains a similar definition.

Accordingly, the $3,000 counseling fees paid by the corporation to the taxpayer, in the instant case, are "wages" for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

Section 1.212-1(1) of the regulations provides that expenses paid or incurred by a taxpayer for tax counsel or expenses paid or incurred in connection with the preparation of his income tax returns or in connection with any proceedings involved in determining the extent of tax liability or in contesting his tax liability are deductible.

Section 1.212-1(g) provides that fees for services of investment counsel in connection with investments held by a taxpayer are deductible under section 212 of the Code, if they are paid or incurred by the taxpayer for the production or collection of income or for the maintenance of investments held by him for production of income and are ordinary and necessary under all the circumstances having regard to the type of investment and to the relation of the taxpayer to such investment.

Accordingly, to the extent any amount of the $3,000 financial counseling fee, in the instant case, is, in fact, paid by the corporation on behalf of the taxpayer for the purposes set forth in section 212 of the Code and the regulations thereunder, such amount is deductible by the taxpayer under that section.