Paul L. Caron
Dean



Wednesday, February 2, 2005

More on Extreme Makeover: Taxpayer Edition

We previously have blogged the aggressive tax position taken by ABC's lawyers in connection with the show Extreme Makeover: Home Edition (see here, here, and here).  The lawyers apparently tell recipients of home makeovers that they can avoid tax on the value of the improvements by characterizing the items as short term rental payments within the meaning of § 280A(g).  A Cincinnati law student, Brian Hirsh, has written a forthcoming law review note on the subject, The Extreme Home Renovation Giveaway: Constructive Justification for Tax-Free Home Improvements on ABC’'s Extreme Makeover: Home Edition, which he has graciously allowed me to share with the TaxProf community.  Here is his Conclusion:

The television show Extreme Makeover: Home Edition is a truly remarkable endeavor. It is a perfect exemplification of everything that is right about a free market economy. ABC, the television station that airs the show, generates substantial money from advertising, as the show has tremendous ratings week-in and week-out. Advertisers whose products are featured on the show receive great publicity for sponsoring and helping a charitable cause. Families featured on the show receive home renovations to raise their standard of living to meet their unique needs. And the viewers at home get to watch the delighted faces of the featured family members and feel comforted to know that good things do happen to good people.

Does the IRS really want to tear down something that has become such a success in so many different ways? It remains to be seen. At the very least, though, should the IRS choose to take a closer look at the situation, it would certainly not be forced to do so. The justifications against doing so are strong. Valuation difficulties in situations where great disparities exist between the subjective value of an in-kind prize to an economically-depressed family and the objective value of the same prize create a degree of uncertainty as to the true value on which the prize should be taxed. The difficulty in principle of levying heavy tax burdens on poor and physically-disabled individuals has the potential of creating serious public relations issues for the IRS. Such factors should justify the IRS’s acceptance of the tax strategy used by ABC and Extreme Makeover: Home Edition, so that all parties can continue to benefit from such a worthy pursuit.

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