K.Prizes, Awards, Gambling Winnings, and Treasure Finds1.Generally, prizes, awards, gambling winnings, and treasure finds are included in gross income.2.Certain prizes properly transferred to qualifying charitable organizations will not be included in gross income.3.Also certain employee achievement awards are excludable if they are not a form of disguised compensation.L.Illegal Income1.Illegal income must be included in gross income. The right against self-incrimination is not a defense.2.Examples of illegal income include embezzlement proceeds, ransom, bookmaking profits, robbery proceeds, sales of illegal narcotics, and bribes.M.Unemployment CompensationBoth government-financed and employer-financed unemployment compensation are fully included in gross income.N.Social Security Benefits1.A maximum of 85% of social security benefits may be included in gross income for certain taxpayers.2. The taxable amount of social security benefits is determined by a formula with two thresholds. Under the first threshold, none is included in taxable income. Above the first but below the second, 0% to 50% is included. Above the second, 50% to 85% is taxable.O.Insurance Proceeds and Court Awards1.The potential inclusion of insurance proceeds and court awards in gross income is affected by the reason the amounts were received.EXAMPLE:Recoveries of lost profits whether as insurance proceeds or damages are includible in gross income.2.Amounts received because of personal injury or sickness are generally excluded from gross income. Punitive damages awarded on the basis of sickness or physical injury are taxable.3.Awards for injury to personal reputation were formerly non-taxable but are now taxable. Damages for injury to business reputation are taxable.