Paul L. Caron

Monday, November 29, 2010

Tax Consequences of Oprah's Latest Car Giveaway

One of the highlights of my income tax course is the hilarious 5-minute video of Jon Stewart's Daily Show segment on the tax consequences of Oprah's 2004 giveaway of Pontiacs to her studio audience:

Oprah was back at it last week, giving away to her studio audience a 2012 VW Beetle, a $1,000 Nordstrom gift card, an iPad, and a limited edition Oprah 25th anniversary watch from Phillip Stein encrusted with 58 hand-set diamonds, among other things:

Oprah apparently learned her lesson from the 2004 tax fiasco, with Volkwagon and Oprah agreeing to pick up her audience members' tax bills:

VW donated the 275 Beetles to the show and the German automaker even included all taxes and fees, thus negating the biggest audience gripe the last time Oprah gave away cars back in 2004. Back then, Oprah handed out Pontiac G6s to her audience members, but the winners had to pick up the tax bill.

Prior TaxProf Blog coverage:

Celebrity Tax Lore, Tax | Permalink

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@George -
Agree completely. Even if the IRS was demanding that you pre-pay part of the tax upfront, most people should be able to borrow enough to handle that, even on a $30,000 car, and take possession so they could sell it later.

Unfortunately, since a car depreciates the second you drive it off of the lot, it's not worth the value that you're being taxed on once you actually take delivery. Nice trap there, but the residual is still free money so I'm still not going to say it's a bad thing.

They could change the law so that the recipient would be taxed on the full new price only if they kept the car and on the cash they received if they sold it within one week of taking delivery. But that just encourages fraudulent transactions no matter what rules you enacted so it would probably never happen.

Posted by: Keith | Nov 29, 2010 4:23:29 PM

Hideous of Oprah to do such a horrible thing to her audience! Imagine the nasty tax hikes that are being done every day to lottery winners, winning bingo ticket holders and of course the worse tax hike of all---year end bonuses! As a lowly accountant I would venture that maybe you should sell the car, pay the tax and pocket the rest.

Posted by: George W | Nov 29, 2010 10:14:30 AM