659 Gifts, Prizes, and Awards
Approved by President
Effective Date: June 5, 2017
Responsible Division: Business and Finance
Responsible Office: Business and Finance
Responsible Officer: Associate Vice President, Business and Finance
Where permitted by applicable law, expenses for gifts, prizes, and awards are allowed to the extent the expense is reasonable and necessary to carry out the mission of Middle Tennessee State University (MTSU or University). As with all expenditures of University funds, money spent on gifts, prizes, and awards may not be lavish or extravagant, and must be spent ethically and in accordance with the law, delegated authority, funding source restrictions, and University policies and procedures.
This policy provides guidance to academic and administrative units regarding the University’s tax reporting obligation. Gifts, prizes, and awards under this policy are intended to conform to Internal Revenue Service (IRS) regulations for the proper inclusion with, or exclusion from, an individual’s gross income. Cash and non-cash gifts, prizes, and awards given must be reported by the University to the IRS as other income to an individual, if the value exceeds the calendar year reporting limit. Consequently, it is incumbent on University departments to have good record-keeping procedures in place to meet possible reporting requirements and document business purposes.
Any single gift, award, or prize is subject to this policy and will require appropriate documentation of the business purpose and recipient tax reporting information. In no event may a single cash or non-cash gift, prize, or award exceed five hundred dollars ($500.00). It is the responsibility of University officials to use good judgment in making these expenditures, in both frequency and cost.
This policy does not apply to research incentive payments, tuition support, payment for services rendered, gifts, prizes, and awards to employees. Generally, awards to students that are related to academic performance are considered financial aid, and as such are not subject to the provisions of this policy. Gifts to students (i.e., Christmas, graduation, birthday, etc.) are not authorized by this policy.
This policy also does not apply to gifts, prizes, and awards that are awarded through the use of a lottery, raffle, or other game of chance. All such awards are unlawful and will subject the employees participating in the illegal game of chance to University disciplinary action and criminal penalties. T.C.A. § 39-17-501(1). Any questions regarding whether a proposed activity constitutes an illegal game of chance should be referred to the Office of the University Counsel.
A. Gifts. Non-cash gifts typically are presented as tokens of appreciation to a dignitary, guest, volunteer, or visitor, when a valid and documented business purpose exists, such as to honor a distinguished visitor or lecturer. A gift is generally of nominal value, given to express appreciation or gratitude, and, ideally, bears the University’s licensed logo or is MTSU themed.
B. Honorarium. A cash gift, or token payment, given to express appreciation or gratitude is considered an honorarium. Honorariums are not related to job performance or a service performed for the University and may not be negotiated in advance. Honorariums cannot be greater than five hundred dollars ($500.00). Payments exceeding this amount require a completed personal services contract. Honorariums of any amount cannot be paid to any state employees.
Honorariums must be requested through Accounting Services on a Payment Authorization (PA) and are always taxable to the recipient; therefore, a completed Form W-9 must be attached to the PA. See Section V.B. Nonresident Aliens as Recipients, under IRS Reporting Requirements below.
C. Prizes. A prize, cash or non-cash, is awarded in conjunction with a judged contest, competition, or drawing where the individual voluntarily initiates participation and is open to any individual who meets the qualification of the event sponsored by a University department or organization. Prizes may be awarded only in situations where benefits are expected to accrue to the University and the event is held for a valid, documented business reason. The amount or value of a prize should be based upon the minimum amount reasonably required to achieve the objective of the promotion and may not exceed five hundred dollars ($500.00). See Section V.B. Nonresident Aliens as Recipients, under IRS Reporting Requirements below.
D. Awards. An award is generally given in recognition of an accomplishment, achievement, or activity that does not require the performance of a service to the University. Non-cash awards that have little intrinsic value, such as pins, medals, trophies, and plaques are not reportable. See Section V.B. Nonresident Aliens as Recipients, under IRS Reporting Requirements below.
IV. Procedures and Documentation of Business Purpose
Gifts, Prizes, or Award Recipient Information form must be completed to obtain the recipient’s tax reporting information and document the business purpose associated with the event. To avoid an IRS mismatch reporting error, it is extremely important that the name the recipient provides on this form matches the name used on their IRS Form 1040 for taxpayer identification purposes. The form must then be forwarded to Accounting Services, which has the responsibility of ensuring University compliance with IRS reporting requirements.
A. Non-cash gifts, prizes, or awards of one hundred dollars ($100.00) or more. Gifts, prizes, or awards that should be reported to Accounting Services are not just those items for which a request for reimbursement or payment is being made. Amounts that must be reported as income also include items directly charged to the department through MT$ource or the P-Card. The recipient’s taxpayer information, business purpose/description, and non-cash/other sections of the Gifts, Prizes, or Award Recipient Information form must be completed by the University department making the presentation, to document the value for tax reporting purposes. This form should be forwarded to Accounting Services within seven (7) days of presentation.
B. Cash gifts, prizes, or awards. Cash gifts must be in the form of a check from the University and cannot be made from a petty cash fund. Requests for payments must be made through Accounting Services on a Payment Authorization form. Either a Form W-9, Request for Individual’s Tax Identification Number form, or completed Gifts, Prizes, or Award Recipient Information form must be attached to the PA request.
C. Gift cards and gift certificates. Considered cash equivalents by the IRS and taxable income to the recipient. Due to their cash equivalency nature, gift cards and certificates cannot be provided as a gift, prize, or award without pre-approval from the division’s Vice President or Provost and the Vice President for Business and Finance. If approval is obtained, P-Cards and petty cash funds may not be used to make these purchases, per the respective policies. Please contact Accounting Services for instructions in obtaining and issuing gift cards or gift certificates.
Gift cards and gift certificates must be handled in the same manner as cash, ensuring adequate controls are in place to safeguard, store, and prevent loss. Until disbursed, gift cards and certificates should be maintained in a secure, locked device appropriate for money storage, subject to audit annually by the University’s auditors.
V. IRS Reporting Requirements
A. U.S. Citizens as Recipients. Gifts, prizes, and awards given are reportable as taxable income, if cumulative amounts in a calendar year, from all University sources, equal or exceed the calendar year reporting limit, as established by the IRS. The University will file an IRS Form 1099-MISC to report the income when total cash and the fair value of non-cash gifts, prizes, and awards to an individual reach this threshold.
Departments are responsible for communicating to recipients that the award, prize, or gift may be taxable under IRS regulations. Even if the annual reporting limit is not reached, and the University is not required to report, recipients are responsible for reporting such amounts on their individual tax returns.
B. Nonresident Aliens as Recipients. Gifts, prizes, and awards to persons who are not U.S. citizens or legal permanent residents are subject to additional tax rules. Where applicable, taxable income will be reported on IRS Form 1042-S and may be subject to thirty percent (30%) withholding. Accounting Services should be consulted prior to distributing a gift, prize, or award to a nonresident alien.
All payments to nonresident aliens must be made from a University account and cannot be paid out of the Foundation.
VI. Exception Requests
Exceptions, or deviations from this policy, may be permitted under certain circumstances, but will require prior written approval by the President or his designee. Each request for an exception must include written justification as to why the higher cost is necessary to carry out the mission of the University. Such requests must identify the type of gift, prize, or award, the purpose, the special circumstances requiring the exception, and identification of the individual(s) on whose behalf the exception is sought. Exceptions approved for gifts, awards, or prizes exceeding the IRS reporting limit will be reported by the University as addressed above. The written justification should be submitted with the appropriate form(s).
As noted above, honorariums exceeding five hundred dollars ($500.00) require a personal services contract and would not be allowable as an exception under this policy.
References: T.C.A. § 39-17-501(1).