December 13, 2011
By Declining $10,000 Bet, Rick Perry Spared Mitt Romney a $4,000 Tax Bill
Forbes: By Declining $10,000 Bet, Rick Perry Spared Mitt Romney a $4,000 Tax Bill, by Janet Novack:
By now, you’ve probably seen the video of Mitt Romney offering a $10,000 bet to Ricky Perry at Saturday night’s Republican Presidential debate and thought about the political ramifications. But what of the tax implications? ...
What if Rick Perry had foolishly taken Mitt Romney up on his $10,000 bet offer? According to PolitiFact, Romney would have won the bet, since Perry’s claim that the first edition of Romney’s book endorsed a Massachusetts individual health care mandate as a model for the nation is “mostly false.”
And in that case, if Perry had acknowledged the loss and handed over $10,000—ok, maybe that’s a heroic assumption–the cash would have been taxable to Romney as ordinary income at a 35% federal and 5.3% Massachusetts state rate. Hence Perry spared Romney a $4,000 tax bill.
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Speaking of tax implications - most people probably don't know that a judgment is considered taxable income by the IRS under the theory that litigation that results in same is just another way to make money. It is possible to deduct attorneys' fees for obtaining and collecting the judgment under "miscellaneous deductions" but this seems totally crazy and mostly you have to do this by amending tax returns filed prior to the original litigation.
Exceptions have been made for judgments in sex and race discrimination cases and in physical injury cases. Yet no exceptions exist for judgments obtained for fraud, although they may merely replace after tax money you have already lost.
On the other hand, the payor, if a business, gets to deduct payment of the judgment as a business expense.
Posted by: lhf | Dec 13, 2011 6:05:20 AM
Aren't Mormons anti-gambling?
Posted by: Shag from Brookline | Dec 13, 2011 6:39:51 AM
Yes, the are.
Posted by: Karen | Dec 13, 2011 8:30:23 AM
dear lord why was this published in forbes?
Posted by: anon | Dec 13, 2011 9:01:41 AM
And spared him after tax income of $6,000. Why focus on tax rather than the net?
Posted by: jmike | Dec 13, 2011 9:01:56 AM
It's not gambling if you know you're going to win. That's why i only play slot machines at casinos.
Posted by: the real anon | Dec 13, 2011 10:32:38 AM
But Mr. ihf, most of us ARE aware that the proceeds of a collected judgment are gross income, with the exceptions provided in the IRC. BTW, a judgment obtained from a fraud should not be replacing the after tax money you already lost, because if you were awake, you took a deduction under IRC 165(e) in the year you discovered the loss. So the loss was already compensated, and when you collect on the judgment, you are ahead of the game. The magic of the annual accounting principle combined with the concept of basis! Don't feel bad, the panel in Murphy v. IRS didn't understand it either.
Posted by: Publius Novus | Dec 13, 2011 10:34:28 AM
Perry also "spared" Romney from netting $6,000.
Posted by: Guy Helvering | Dec 13, 2011 11:11:36 AM
But gambling losses are deductible. Doesn't a presidential election campaign count?
Posted by: Bob | Dec 13, 2011 12:12:06 PM
He also spared him a $6,000 net profit.
Posted by: George W | Dec 13, 2011 4:35:46 PM
Is gambling legal now?-Or is it a gamble when you know the other side is just lying?
Posted by: Nick Paleveda MBA J.D LL.M | Dec 14, 2011 11:27:25 AM