Strike benefits are income, not gifts.

During the 1989 Eastern Airlines strike, two striking pilots received strike benefits of about $20,000 each from the pilots' union, the Air Line Pilots Association International. Strike benefits were funded by charges imposed on union members who flew for nonstriking airlines.

The pilots claimed the strike benefits were gifts, which are excluded from gross income under IRC section 102(a). In support of their claim, the pilots advanced the theory that the union was merely a conduit through which nonstriking pilots made gifts to their striking colleagues.

Result: For the IRS. The strike benefits were gross income. The U.S. Supreme Court's rule (in LoBue) is that to qualify as a gift, a payment must be motivated by a "detached and disinterested generosity." First, contrary to the tax-payers' contention, the union, and not the nonstriking pilots, was the source of the strike benefits. Further, neither the nonstriking pilots nor the union was motivated by detached and disinterested generosity. The pilots were required to pay the strike-benefit charges, and the union's motivation was to promote the economic security of its members. Receipt of the benefits was contingent on participating in the strike and the individual financial needs of strikers were not taken into account. Thus, the pilots had to include the benefits in income. * Osborne, TCMemo 1995-71.