Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-87

1973-1 C.B. 39

Sec. 61

IRS Headnote

Amounts received by certain low-income families under an experimental antipoverty program funded by the Office of Economic Opportunity are excludable from gross income.

Full Text

Rev. Rul. 73-87

Advice has been requested whether amounts paid under an experimental program funded by the Office of Economic Opportunity are includible in the gross income of the recipients.

The Economic Opportunity Act of 1964, as amended, Public Law 88-452; 78 Stat. 508, 42 U.S.C.A. section 2701 et seq., authorizes the Director of the Office of Economic Opportunity to conduct, or to make grants to, or enter into contracts with, institutions of higher education or other appropriate public agencies or private organizations for the conduct of research, training, and demonstrations for the purpose of providing stimulation and incentive for urban and rural communities to mobilize their resources to combat poverty through community action programs.

In accordance with this authority, a grant was made by the Office of Economic Opportunity to a university to enable it to conduct an experimental welfare program among poor and near-poor families selected at random from a particular geographic location of the United States. Under the program, payments were made to families based on need as determined by income and family size. The reference point for determining need was the poverty income level set by the Social Security Administration.

On the premise that many existing welfare programs do not provide incentives for recipients to seek gainful employment, and, in fact, encourage the breakup of families by reducing welfare payments dollar for dollar for amounts earned and by stopping payments if an adult male resides in the home, the university conducted the experimental program to study the reaction to a program in which assistance payments would be reduced at a rate of less than 100 percent for each dollar earned and would be based on the economic need of the family regardless of whether an adult male resided in the home.

To determine the amount of the payments to be made to an eligible family, a minimum income level for the family is established and a rate for the reduction of payments is set. As the family's income rises, the amount of the payment is reduced by this rate until the minimum income level is reached. Since the program is experimental the same rate is not applied in all cases. For purposes of applying the rate, "income" is defined as taxable income within the meaning of that term under the Internal Revenue Code, with certain modifications and adjustments.

In addition to the above, each family participating in the program is also reimbursed for Federal income taxes paid until its income reaches the point at which the assistance payments decline to zero.

Section 61(a) of the Internal Revenue Code of 1954 defines gross income as all income, from whatever source derived, except as otherwise provided by law. It specifically includes compensation for services, including fees and similar items. However, disbursements from a general welfare fund in the interest of the general public which are not made for services rendered are not includible in gross income. See Revenue Ruling 63-136, 1963-2 C.B. 19, and the rulings cited therein.

In the instant case the payments are in the nature of general welfare payments and are intended to aid poor families without destroying their incentive to improve their living standards.

Accordingly, it is held that the payments, including any amounts paid for reimbursement of Federal income taxes, are not includible in the gross income of the recipients.