At the end of the President's comments on his being awarded the Nobel Peace Prize this morning, a reporter shouted out, "What are you going to do with the money?" The President didn't answer.
My understanding is that the prize this year is estimated to be $1.4 million. The ceremony takes place in December; I assume the prize is awarded then and that thus the amount is included in income for 2009.
My guess is that, since his 2009 tax return will surely be made public and given the content of his remarks this morning, the President will give a great deal of the prize money to organizations eligible for the charitable contribution deduction (although which ones to choose must be a challenge; I wonder if he might choose to make the gift to the United States for public purposes).
His AGI for 2008 was $2,656,902, mostly from sale of his books. I assume that, leaving aside the Nobel Prize award, this figure is likely to be higher this year because his candidacy encouraged book sales. If so, he will have no trouble giving away the Nobel Peace Prize money without running up against the 50% AGI limits on charitable deductions.
But if he did run up against the 50% AGI limits, § 74(b) would allow him to transfer money directly from the Nobel Prize Committee to a charitable or governmental recipient without the amounts becoming part of his gross income. Indeed, I once researched this provision for a local scientist who won a large prize from the government of another country and wanted to make use of it and learned it was enacted in good measure for Nobel Prize recipients. (Sadly for the winner of the prize, the other government at the last minute declined to transfer funds to the community foundation identified, believing, despite an opinion of counsel, that this would be some kind of tax shelter.) Publication 525 now contains detailed guidance on the application of § 74(b) to winners of "Pulitzer, Nobel, and similar prizes."
But, it seems to me, that even if the 50% AGI limit were a problem, the President would nonetheless decide not to use § 74(b) because he would as a political matter need to show both that he took the Nobel Prize money into income and that he made charitable contributions of it on his publicly disclosed tax return -- the tax benefit of § 74(b) would be too great a public relations detriment to him. That is, using § 74(b) might look to the public, as it did to the foreign government, that he was somehow sheltering income. Often, we think that that exclusions from income have advantages over deductions -- exclusions do not figure into AGI in calculating limitations for the charitable contribution deductions, the medical deduction, etc. But ironically, public disclosure and its public relations function may constrain the use of legitimate and beneficial tax provisions.