Condo Media - December 2018 - 20

Asked & Answered

Santa's Helpers
Navigating Holiday Gift Giving

Our board wants to thank our association
manager this holiday season with a cash
gift. What's the best way to handle that?

Very carefully. That advice comes from Kenneth
Bloom, CPA, a partner in Bloom Cohen Hayes LLC,
who says he gets this question regularly from condominium association clients-and most don't like his
answer: "You can call it a gift," he says, "but as far as
the IRS is concerned, it's compensation, and it has to
be treated as such."
The defining question for the IRS, Bloom explains,
is this: "If not for the employer-employee relationship, would this person be on your annual gift list?"
The honest answer, he says, is no. "It is very difficult
to demonstrate the 'donative intent' the tax laws require," he notes, and equally difficult to find workable
paths around this IRS obstacle.
Giving a non-cash gift won't work, Bloom says,
because they are subject to the same tax rules as cash
gifts. Turkeys, hams, and inexpensive gifts classified
as de minimis (of nominal value) and "distributed
as good will" aren't taxable, Bloom explains. But
anything that can be converted to cash (gift certificates or season tickets for the Red Sox, for example)
or that is worth more than $75 must be treated as
compensation.
Some boards try to get around the compensation
requirement by simply writing a check to the manager
that isn't run through the payroll. That may escape
IRS notice (or not), Bloom says, "but it still violates
the tax law." At a minimum, he says, the board should
give the employee receiving this gift a 1099 form-
reporting compensation paid to independent contractors. That's not really appropriate, he says, because a
staff member "can't be both a full-time employee and
an independent contractor." This arrangement also
doesn't work well for employees, he notes, because
the additional income would be subject not only to the
applicable federal and state income tax, but also to the
15.3 percent self-employment tax-a double-taxation
"gift" that few will welcome.

CONDOMEDIA December 2018

What if owners give the manager money individually or collect money from other residents as a group
gift? "That happens," Bloom acknowledges, "and I'm
not sure there's anything the board can do to stop it."
But there are potential problems, he says. For one: It
is hard to track owners' contributions and ensure that
all the money collected "is disbursed properly" as gifts
for the manager and other employees. Favoritism is
another possible concern, Bloom says. "If the board
hears about this and doesn't discourage it, will this encourage staff members to give preferential treatment
to owners from whom they receive gifts?"
His advice to boards that want to reward managers
and other employees is to do so transparently and in
compliance with the tax laws. That means treating the
gift as compensation and withholding the required
amounts for federal income tax and Social Security
(FICA). If the board wants to give the manager $X,
Bloom says, it will have to "gross up" that sum by adding on the amount needed to cover the withholding. So
the gift will cost the association $X plus more. "Boards
don't want to do that," Bloom says, "but there is no
other way to do it legally. Associations have an obligation to conduct their business in conformance with
tax law," he emphasizes, "and like it or not, cash gifts
to employees are compensation. The only honest and
ethical approach is for boards to treat them that way."

Condo Media - December 2018

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