GREAT question!!!! Did he claim it as a GIFT to the IRS!!!!
The recipient of a gift is not responsible for reporting the gift to the IRS. Gifts are generally not subject to income tax. A gift from an employer is subject to income tax regardless of donative intent (Sec. 102(c)). Donors are responsible for filing gift tax returns (Form 709). The gift tax is an excise tax on the gift of property. No gift tax return is required if the gift is under the annual exclusion amount, which is currently $13,000 per donor per donee (it is $10,000 as indexed for inflation). A gift tax return is required if the amount exceeds the annual exclusion. Before the donor has to pay any gift tax, the donor must have exhausted the lifetime exclusion, which I believe is currently $1,000,000. Married individuals can effectively double the annual exclusion and lifetime exemption by electing gift splitting on Form 709.