What are the tax consequences of Al Gore's receipt of the 2007 Nobel Peace Prize (shared with the Intergovernmental Panel on Climate Change)? Had Gore not done any tax planning, the $1.8 million cash award would have been income to him. From IRS Publication 525:
Pulitzer, Nobel, and similar prizes. If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income.
But Gore apparently planned in advance to take advantage of § 74(b):
Exception for certain prizes and awards transferred to charities Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if—
- the recipient was selected without any action on his part to enter the contest or proceeding;
- the recipient is not required to render substantial future services as a condition to receiving the prize or award; and
- the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170 (c) pursuant to a designation made by the recipient.
Gore announced on Friday:
My wife, Tipper, and I will donate 100 percent of the proceeds of the award to the Alliance for Climate Protection, a bipartisan non-profit organization that is devoted to changing public opinion in the U.S. and around the world about the urgency of solving the climate crisis.
Since the Alliance for Climate Protection is a § 501(c)(3) organization and Gore meets the other § 74(b) requirements, the $1.8 million will not be included in his income. (Hat Tip: Don't Mess with Taxes.)