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Wednesday, December 27, 2006

Tax Consequences of Microsoft's "Gift" of Laptops to Bloggers

Acer_2Slashdot reports today (via Long Zheng) that Microsoft is sending out free top-of-the-line Acer-Ferrari laptops pre-loaded with Vista to bloggers as a "no strings attached gift."  Four questions:

  1. What are Microsoft's tax reporting obligations?
  2. Is there any way for the bloggers to avoid reporting the fmv of the laptops on their 2006 tax returns?
  3. What are the ethical constraints on the blogger in reviewing Vista after accepting the free laptop?
  4. What about me?

(Hat Tip:  George Mundstock.)

http://taxprof.typepad.com/taxprof_blog/2006/12/tax_consequence_3.html

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» Dear Microsoft . . . from The Volokh Conspiracy
I promise to blog about what I think of Vista if you add me to your laptop list. (Of course, I can't promise that I'll like it.) [Read More]

Tracked on Dec 27, 2006 4:33:22 PM

Comments

Microsoft: please send mine to my home address, but send the 1099 to the office!

Posted by: Joe Kristan | Dec 27, 2006 1:45:39 PM

Why worry? The 16th ammendment was never ratified therefore nothing is owed.

Posted by: john | Dec 27, 2006 4:17:27 PM

Tyvm, but please just send cash as Pepsi and A.I.G. have ceased advertising on my blog unless I indict Achmadinejad and his connection to the Oklahoma City bomb, London bus attacks, and the murder of Gerald R. Ford.

Sincerely,
Blog R. Blogowski

Posted by: blog r. blogowski | Dec 27, 2006 4:39:19 PM

No gift tax consequences!!! Wooo!!!

Posted by: Gump, Esq. | Dec 27, 2006 4:46:14 PM

It's clearly income. See Holcombe v. Commissioner, 73 T.C. 104 (1979).

Since I'm the first one to answer the question (with citation of authority), I will, at least, get the second computer.

Posted by: Stuart Levine | Dec 27, 2006 5:22:59 PM

I hate Microsoft -- stick your free computer someplace deep. I'd rather use an abacus.

Posted by: Jolly Roger | Dec 27, 2006 7:45:16 PM

A:\chkdsk/f
A:\format B:\s
A:\copy *.* B:\

I'm still running DOS on this old dual floppy Compaq luggable PC of mine, and there is no way I'm upgrading for anyone. I like the gray screen with the gold letters just fine.

Don Robertson, The American Philosopher
Limestone, Maine

An Illustrated Philosophy Primer for Young Readers
http://www.geocities.com/donaldwrobertson/index.html

Posted by: Don Robertson | Dec 27, 2006 8:07:38 PM

Well, clearly Acer-Ferrari laptop computers were not within "the commonly understood meaning of the term ["income"] which must have been in the minds of the people when they adopted the Sixteenth Amendment." So if you end up getting assessed, be sure to bring your suit in the D.C. Circuit.

Posted by: Andrew | Dec 27, 2006 8:21:50 PM

You keep the laptop & tell Uncie Sam nothing, the IRS is not a governmental body anyway. In fact you ought to deduct it as an expense, what with all the upkeep required. Knowing how new MS OS's usually work, it'll be a dependent before you know it.

Posted by: james | Dec 27, 2006 9:19:50 PM

I'd LOVE to blog about Vista.

But I could never afford the tax on the laptop.

Posted by: piltdown | Dec 27, 2006 11:04:31 PM

It's a Trojan Horse.

A life full of Viruses and Spyware, courtesy of Micro$oft.


Old Chinese Proverb: never accept gifts from the greedy, for suffer the consequences you will.

Posted by: Steve Johnson | Dec 27, 2006 11:21:31 PM

IRS is another illegal agency birthed from an unconstitutional gov't. Just add it to the list of gov't actions that rountinely violate our Constitutional rights.
They violate the 1st Amendment by caging demonstrators and banning books like "America Deceived" from Amazon.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing.
They violate the entire Constitution by starting 2 illegal wars based on lies and on behalf of a foriegn gov't.
Eliminate the IRS.
Last link (unless Google Books caves to the gov't and drops the title):
http://www.iuniverse.com/bookstore/book_detail.asp?&isbn=0-595-38523-0

Posted by: Jack D | Dec 28, 2006 4:59:48 AM

From hubby, the CPA, it's a gift ergo not taxable. If you sell it, then you pay up. Moral issues? Can you accept an expensive gift and still judge it fairly? We'd all like to think we can, but would we be as picky about the flaws as we would if we shelled out thousands of our own hard earned dollars? Get serious.

Posted by: erp | Dec 28, 2006 7:33:27 AM

For federal gift tax purposes, a gift is defined as the transfer of any interest in property, broadly defined, for less than full consideration in money or money's worth. There is an exception for less-than-FMV-transfers made in the ordinary course of business. I suspect that Microsoft will treat the free computers as a marketing expense, which would eliminate gift tax consequences. Individuals may take advantage of the annual exclusion from the federal gift tax, a provision that exempts up to $12,000 (indexed amount for 2006) per year per donee from the gift tax, provided the gift is of a present interest in property. Gift amounts that qualify for the annual exclusion are not counted against the lifetime exclusion amount (currently $1,000,000). Thus, so long as the computers were worth less than $12,000 and each one went to a different person, an individual could give away computers all day long without gift tax consequences (or even any reporting obligation). The fact that Microsoft is a corporation complicates things. A gift made to a corporation is treated as a gift to each of the individual shareholders, but does not qualify for the annual exclusion because it is not a present interest. Perhaps a gift by a corporation is treated as a gift by each of the individual shareholders? I'd be curious to hear if anyone knows the answer.

Posted by: Mose | Dec 28, 2006 11:25:19 AM

This is not my area, but I thought that gifts, to be nontaxable, had to be given out of a detached feeling of generosity (or some similar language). I can't imagine that this is a "gift" in that sense.

This Microsoft situation sounds similar to when Oprah "gifted" her entire audience with new cars. Oprah gave them with the expectation of promoting her television show, just as Microsoft is hoping to promote its OS. The cars (if I recall properly) were taxable to the recipients and I imagine the laptops will be as well.

Posted by: Paul Sherman | Dec 28, 2006 11:26:16 AM

I apologize. I only asked hubby the CPA if gifts were taxable and didn't give him all the details. He says there is no such language defining gifts, but that the IRS will probably decide these aren't gifts, but prizes or something else that is taxable.

Posted by: erp | Dec 28, 2006 2:38:48 PM

The Oprah cars were worth more than $12,000 apiece and thus were over the $12,000 permitted to be given as a tax-free gift.

Posted by: dlm | Dec 28, 2006 9:21:32 PM