My friend was on the Ophra Winfrey show last December when she gave away expensive gifts to teachers in the audience. Does she need to pay tax on this? Could she say it was a gift rather than a prize? She did not enter a contest, they just gave her the stuff. What should she do?
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TV Giveaway Show
Regulation Section 1.74-1(a) says the following:
(a) INCLUSION IN GROSS INCOME. (1) Section 74(a) requires the inclusion in gross income of all amounts received as prizes and awards, unless such prizes or awards qualify as an exclusion from gross income under subsection (b), or unless such prize or award is a scholarship or fellowship grant excluded from gross income by section 117. Prizes and awards which are includible in gross income include (but are not limited to) amounts received from radio and television giveaway shows, door prizes, and awards in contests of all types, as well as any prizes and awards from an employer to an employee in recognition of some achievement in connection with his employment.
Regulation Section 1.74-1(b) gives the following exception to the above rules:
(b) EXCLUSION FROM GROSS INCOME. Section 74(b) provides an exclusion from gross income of any amount received as a prize or award, if (1) such prize or award was made primarily in recognition of past achievements of the recipient in religious, charitable, scientific, educational, artistic, literary, or civic fields; (2) the recipient was selected without any action on his part to enter the contest or proceedings; and (3) the recipient is not required to render substantial future services as a condition to receiving the prize or award. Thus, such awards as the Nobel prize and the Pulitzer prize would qualify for the exclusion. Section 74(b) does not exclude prizes or awards from an employer to an employee in recognition of some achievement in connection with his employment.
So on the one hand, you have a person going to a TV show and receives a prize for attending – a TV giveaway show – in which case it is taxable. But on the other hand, it could be argued it really wasn’t a TV giveaway shoe – it was a talk show, and the teachers in the audience were invited to attend because the host wanted to honor the audience’s achievements – all teachers – for their outstanding work in the educational field – in which case it would be excluded from income.
Or you could argue it was a gift, except gifts generally do not happened between strangers. When income can fall into a different category, such as a prize, award, wages, earnings, etc. you cannot change the category to gift merely to avoid tax.
I would tend to rule on the side that it was a TV giveaway show. This isn’t the first time Oprah has given stuff to members of the audience. These types of shows often give things to audience members when they are a significant part of the show. It wouldn’t be a show if it didn’t have something of interest to the TV home viewing audience. Oprah looks good for being generous. Thus, here ratings go up when she is kind to the audience. I think it would be taxable. -
No Gray Area
There's no gray area here. The prize is not excludable from income.
Bees cited Reg. 1.74-1(b). However, IRC section 74(b)(3) places the following restriction:
"the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient."
Section 170(c) defines charitable contributions.
Proposed Reg. 1.74-1(d) clears up the regulatory omission of the code provision. The proposed reg states, in part:
"An exclusion will not be available under this section unless the designated items or amounts are transfered by the payor to one or more qualified donee organizations."
The prize is excludable only if the teacher gave it to charity.Comment
Comment