Although gifts are generally excluded from the recipient's gross income, transfer by or for an employer to or for the benefit of an employee can't be excluded as a gift (Code Sec. 102(c)(1)).

Extraordinary transfers to the natural objects of an employer's gift (e.g., an employee who is the employer's son) aren't transfers to or for the benefit of the employee if the transfer wasn't made in recognition of employment.

De minimis fringe benefits are not treated as a gift and are excluded from the recipient's gross income (Code Sec. 132(a)(4)). A de minimis fringe is any property or service whose value is so small that accounting for it is unreasonable or administratively impracticable, considering the frequency with which similar fringe benefits are provided by the employer to its employees (Code Sec. 132(e)(1)).

If, as a means of promoting goodwill, an employer makes a general distribution to employees of hams, turkeys, or other merchandise of nominal value at Christmas or a comparable holiday, the value of the gifts isn't included in the employees' income (Rev. Rul. 59-58).

But if an employer distributes cash, gift certificates or similar items of readily convertible cash value, the value of the gifts is additional wages or salary, regardless of the value.

But Christmas gift certificates, redeemable only in the employer's merchandise up to $25 in value, were exempt from withholding and so not compensation income because the certificates weren't readily convertible to cash and were of relatively small value (Hallmark Cards v. U.S., (1961, DC MO)).