Sunday, May 9, 2004
Monday, May 10, 2004
This week's Newsweek has a great article on the tax consequences of one of the hottest reality TV show crazes: the home-makeover. It is well-settled that TV game show participants must report their winnings as income, although valuation of in-kind prizes often proves troublesome. In one of my last cases in practice before entering the academy in 1990, my law firm represented a homeowner featured on the PBS show This Old House. We succeeded in convincing the IRS that our client should report as income not, as the IRS initially claimed, the retail fmv of the products and services used to improve his home, but rather the (smaller) increase in the fmv of his home post-makeover. The tax lawyers advising ABC's Extreme Makeover: Home Edition have come up with a better, more creative solution (if it works):
ABC leases participants' homes, paying $50,000 for the 10-day rental. But instead of paying the "rent" in cash, ABC treats the provision of flat-screen TVs, applicances, etc. in the home-makeover as the rental payments. The ABC tax lawyers believe this makes these amounts exempt from tax under Code section 280A(g), which excludes income derived from short term rentals of a home for less than 15 days. Why didn't I think of that back in 1990!?!
Newsweek contacted 6 "outside tax professionals": "While some called it clever -- even 'elegant' -- most scofffed at the show's approach, saying the IRS would be highly unlikely to agree with all aspects of it." Newsweek picked a great homeowner to profile in the article -- a National Guardsman deployed in Iraq who is concerned that the makeover of his Southern California home will leave him subject to tax on the 250k worth of improvements.