A tax kerfuffle has broken out over the proper treatment of the $150,000 wardrobe provided to Sarah Palin and her family by the Republican National Committee. Politico initially reported the story:
The Republican National Committee has spent more than $150,000 to clothe and accessorize vice presidential candidate Sarah Palin and her family since her surprise pick by John McCain in late August.
Proving the adage that all things eventually have a tax angle, the mainstream media and blogosphere soon buzzed with speculation about the proper tax treatment of the expenses. For example, on Bloomberg: Palin's $150,000 in Makeover Expenses May Become Tax Liability, by Ryan J. Donmoyer:
Republican vice presidential nominee Sarah Palin's $150,000 makeover may raise her tax bill.
The Republican National Committee disclosed spending more than $150,000 for designer clothes, shoes, makeup and other accessories for Palin, or the equivalent of about $5,000 per day since John McCain picked her as his running mate in August. After the expenditures were reported by Politico, the campaign said it had always been the intention to donate the clothing to charity.
Palin earned $166,080 last year, according to her tax returns. Under some circumstances, the IRS may consider the clothing income taxable to her, tax experts said. As a former Goldman Sachs Group Inc. banker learned last year, the write-off for donating used designer clothing can amount to a fraction of their retail value.
"This is clearly income," said Paul Caron, associate dean of the University of Cincinnati School of Law, who edits the TaxProf Blog. "The charitable deduction will not eliminate all, or most, of the income."
See also ABC News. The RNC later attempted to quell the tax tempest:
"With all of the important issues facing the country right now, it’s remarkable that we’re spending time talking about pantsuits and blouses," said spokeswoman Tracey Schmitt. "It was always the intent that the clothing go to a charitable purpose after the campaign."
But Linda Beale (Wayne State) notes that this may not resolve the tax issues:
For Palin, even if she doesn't get to keep them, hasn't she had the personal benefit of them--like renting a tuxedo without having to pay the rent, except that this is the clothes she's being seen in every day during the campaign, much more than just an outfit donned for a rare special event? Under that light, it appears that the fair use value, at the least, should be income to her, and that might well amount to a considerable portion--maybe as much as ninety percent or more-- of the original cost of the outfits. ...
An ongoing free-flow of discussion on the TaxProf listserve has thrown out a number of interesting ideas. Riffing on them, I'll add the following. Perhaps the use by Palin is just like actors who wear wardrobes provided by the producers, so not income at all, based on an arguably relevant analogy in the Ozzie Nelson case (a deduction for wardrobe expenses for the family's outfits on their pre-reality-shows reality show, for clothes that they claimed were too hot to be suitable for their real California lifestyle). Maybe it is like actresses who are loaned fancy designer gowns to wear for the Oscar festivities. But hey--shouldn't the use value be income to them, though? If there's no tax consequence when the boss buys you the clothes that make the man that is the man that the boss wants to hire and the man wears the clothes anytime when not in his own home sanctuary, what's to stop all the company executives and law firm partners from having their firms buy their clothes and letting them wear them on loan, taxfree? Surely that would be one boondoggle for the wealthy too many for American taxpayers to stomach.
Recall the tax controversy surrounding the loan of designer dresses to Nancy Reagan (New York Times)
Update: Stephen Cohen (Georgetown) has more.