Friday, October 16, 2009
WaPo's Tax Whopper
I previously blogged (here and here) the tax consequences of President Obama's Nobel Prize: although the prize will cause some subtle tax headaches under various phaseouts rules (e.g., itemized deductions, AMT exemption), there will be no general tax advantages or disadvantaged to the President: he will either (1) include the $1.4 million in income and make offsetting charitable deductions, or (2) if he runs up against the 50% AGI limit on charitable deductions, he can exclude the $1.4 million in income under § 74(b) by having the Nobel Committee directly transfer the prize to charity. Either way, President Obama's tax situation is unaffected.
Despite these clear tax conequences, today's Washington Post published an op-ed with this erroneous statement:
[T]he president has indicated that he will give the prize money to charity, but that does not solve his legal problem. Giving that $1.4 million to a charity could give him a deduction that would reduce his income taxes by $500,000 -- not a nominal amount.
An Unconstitutional Nobel, by Ronald D. Rotunda (Chapman) & J. Peter Pham (Foundation for Defense of Democracies). One hopes that their constitutional analysis is sounder than their tax analysis. (Hat Tip: Ralph Rainier.)
Update: Ellen P. Aprill (Loyola-L.A.):
An earlier comment on a blog that mentioned this same ethical issue suggested one way around the problem would be for Obama to suggest to the Nobel Prize Committee that it give it directly to the charities he recommends (without his knowing about § 74(b)). Thus, use of § 74(b) might avoid not only tax but also government ethics and Constitutional issues!
https://taxprof.typepad.com/taxprof_blog/2009/10/wapos-tax.html
Comments
What the President should do is use Section 74(b) to transfer the award directly into the U.S. fisc, which could certainly use an extra $1.4 million. See IRC section 74(b)(3) (prize is not gross income if "the prize or award is transferred by the payor to a governmental unit").
Posted by: nemo | Oct 18, 2009 1:48:54 PM
Maybe I missed something here but the taxes on 1.4 million in income is $490,000. A gift to charity of 1.4 million will reduce AGI by 1.4 million, so long as the 50% limitation does not apply. This would reduce his income taxes by $490,000.
I would not call the statement erroneous, especially in light of what the rest of the article had to say.
Lastly, and not to jump to the defense of the Washington Post, but remember this is an op-ed. We can question their judgment in running the piece, but the responsibility to provide accurate legal reasoning and analysis belongs to the authors, not the paper.
Posted by: A. Saunders | Oct 17, 2009 10:33:44 AM
Use the money to build a monument to the taxpayers on the National Mall.
Posted by: Woody | Oct 18, 2009 2:10:36 PM