TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, January 28, 2008

IRS: Furniture Giveaway to Red Sox Fans Tied to World Series Victory Treated as Purchase Price Reduction, Not Income

Red_soxI previously blogged (here and here) the tax consequences of the latest example of refunds tied to a local sports team's success:  Jordan's Furniture in Boston ran a "Monster" promotion promising that customers who purchased furniture between March 7 and April 16 would have their entire purchase price refunded if the Red Sox went on to win the 2007 World Series.  Jordan's initially took the position that any refund would be taxable to its customers:

Per IRS regulations, Rebate Claim Forms valued at $600 and above will be issued a 2007 1099 Form from Jordan’s Furniture and will be reported to the Internal Revenue Service.

But the Boston Globe later reported that Jordan's and its tax lawyers were trying to find a way to treat the refund as a purchase price rebate rather than as income, and the company changed its FAQ accordingly:

Is my rebate taxable? You are responsible for any federal, state and local taxes relating to your rebate. The Internal Revenue Service has ruled that rebates paid to retail customers generally are not included in gross income for federal income tax purposes, but instead reduce the tax basis of the property purchased. Because everyone’s tax situation is different, if you have any questions concerning your tax responsibilities, you should contact your personal tax advisor.

Will I get a Form 1099 concerning my rebate? Jordan’s does not intend to file Forms 1099 with respect to rebate payments unless it is required to do so by the Internal Revenue Service.

In a letter to its customers dated January 18, 2008, Jordan's announced that it has obtained a ruling from the IRS holding that the payments are to be treated as purchase price adjustments and not as income to customers:

As you may recall when you submitted your rebate form, we asked for your social security number in the event that Jordan's was required to issue an IRS Form 1099 for tax year 2007 reflecting the amount of your Monster Deal rebate. In order to clarify our reporting obligations, Jordan's requested and has now obtained a private letter ruling from the Internal Revenue Service.  We are very pleased to announce that the IRS has agreed with Jordan's position that Monster Deal rebates represent a reduction in the purchase price for Monster Deal merchandise, and has ruled that Jordan's in not required to report Monster Deal rebates on Forms 1099.  Since each Monster Deal rebate is treated as a purchase price reduction, the ruling also indicates that a rebate generally will not be includible in a customer's gross income for federal income tax purposes except to the extent that the customer has been entitled to a tax deduction or other tax benefit in connection with the Monster deal merchandise.

(Hat Tip: Eli Bortman.)

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Does anyone know the PLR number for this ruling? I was interested in reading it, but was unable to locate it?

Posted by: Kristin | Jan 31, 2008 8:10:25 AM

The ruling won't be released until they go through the 6110 deletions process, which takes a few months.

Posted by: TaxMan | Feb 8, 2008 11:30:44 AM