Oprah Again Sticks Audience with Big Tax Bill

Inveterate readers of this blog know that we ran several posts on the tax problems associated with Oprah Winfrey's giveaway of 276 new Pontiac G6 sedans to members of the audience at her premiere of the 2004-05 season (9/14, 9/21, 11/3, and 12/20).  Because the cars constitute taxable prizes, Oprah's largesse resulted in heft tax bills for the audience (hilariously parodied on Jon Stewart's The Daily Show).

The "Shop Talk" column in the January isssue of the Journal of Taxation by Sheldon I. Banoff (Katten, Muchin Zavis Rosenman, Chicago) & Richard L. Lipton (Baker & McKenzie, Chicago) notes that although Oprah has learned some tax lessons, she has a way to go to solve the tax problems her show can cause her audience.

As part of her "Oprah's Favorite Things" show on November 22, she gave away over $13,000 worth of stuff to each of the school teachers in her audience, including:

• $2,249 TV
• $2,189 washer/dryer
• $2,000 laptop computer
• $1,499 navigation system
• $495 leather duffel bag
• $188 sweater
• $38 champagne glasses

Although Oprah gave each member of the audience $2,500 to help defray taxes, the media wrongly reported that there would be "[n]o Pontiac boomerang effect this time around."  The Shop Talk folks ran the numbers and report that Oprah's $2,500 cash subsidy will cover less than half of the federal and state tax bill caused by inclusion of the $15,500 in each audience member's income.  Instead, Oprah should have paid each audience member $8,000 to eliminate all of the tax liability.  They conclude:

We again applaud Oprah for making her audience happy with valuable giveaways – at least until next April 15, when their tax return preparers will give the teachers a math lesson on their tax bills!