When Oprah gave away Pontiac G6 sedans to her TV audience, was the value of the cars taxable? On Labor Day weekend in 2006, World Furniture Mall in Plano, Illinois, gave away $275,000 of furniture because the Chicago Bears shut out the Green Bay Packers in the team’s football season opener at Lambeau Field in Green Bay (26-0).
Was the free furniture in the form of a discount or rebate taxable, or should the furniture company have handed the customers a Form 1099-MISC? Response
After thoroughly researching taxable and nontaxable income, the Pontiac G6 sedans awarded to Oprah’s television audience would have been subject to federal taxation and included in their gross income. The Code of Federal Regulations states the taxable and nontaxable income to be included in one’s federal taxes, the code reads that “if you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income” (Prizes and Awards, 2003).
The fair market value of all prizes and awards, other than certain scholarships, must be included in gross income (Hoffman p. 4-33).
In further research, CNN Money reported that the cars Oprah gave away were indeed subject to federal taxation. Pontiac agreed to pay most of the local charges, including state sales tax and licensing fees, but the fair market value of the car, $28,500, was still subject to be added to the taxpayer’s gross income. The audience members had a choice to either pay up to $7,000.00, depending on the taxpayer’s tax bracket and keep the car, forfeit the car, or sell the car and pay the $7,000.00 with the profits (money.cnn.com).
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Recently Yahoo! Finance interviewed a contestant, Andrea Schwartz, who was on the television game show The Price Is Right about her $33,000 worth of winnings including a red Mazda 2 compact car, a pool table, and a shuffle board table. Andrea stated that after the show, she had to sign some paperwork that basically stated that she would have to pay federal taxes on all of her winnings at fair market value for items not including cash, and if the contestant lived in California, they would have to pay the California state tax ahead of time. Luckily she had won some money playing the game Plinko and had some money saved up in order to pay the state tax ahead of time and then sold the rest of the items minus the car and invested in a food truck business. Unfortunately, not all contestants are that lucky (shine.yahoo.com).
As for the discount or rebate regarding the furniture bought by customers the weekend the Chicago Bears shut out the Green Bay Packers, research shows that the amount awarded the customers was regarded as a “cash rebate or refund.”
The owner of World Furniture Mall, Randy Gonigam, had advertised the free furniture promotion prior to the weekend that the Chicago Bears played the Green Bay Packers and therefore any customer that bought furniture from World Furniture Mall that weekend was consequently awarded their refund or rebate (furninfo.com).
According to the Code of Federal Regulations, “refunds are amounts paid back or a credit allowed on account of an overcollection” (Purchase discounts and allowances, and refunds of expenses).
Section 413.98 further states that “all discounts, allowances, and refunds of expenses are reductions in the cost of goods or services purchased and are not income.”
In 1956, Pittsburgh Milk v. Commissioner (26 T.C. 707) established the first ruling regarding rebates. The ruling declared that seller-to-buyer rebates were excludable from gross income. In 1987, United States v. General Dynamics(481 U.S. 239), the Supreme Court’s decision acknowledged that to qualify for a rebate, the customer must fill out a form, attach certain items and mail them to a third-party administrator within 30 days and the taxpayer’s liability for rebates is not fixed until the customer mails the forms and attachments.
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Being that the refund or rebate was classified as a “cash refund,” World Furniture Mall should not have given the customers a Form 1099-MISC along with their refund or rebate because a Form 1099-MISC is to report miscellaneous gross income, which a cash refund is excluded from.
Works Cited
CNN Money. Oprah Car Winners Hit With Hefty Tax. Money.cnn.com. Retrieved August 8, 2013 from http://money.cnn.com/2004/09/22/news/newsmakers/oprah_car_tax/.
Furniture World. Plano Furniture Store Owner’s Passion for Hometown Chicago Bears Costs Him $300,000. Furninfo.com. Retrieved August 8, 2013 from http://furninfo.com/Furniture%20Industry%20News%20Archive/6669.
Hoffman, W., Maloney, D., Raabe, W., & Young, J. (2013).
Federal Taxation Comprehensive Volume. (36 ed.).
Ohio: South-Western, Cengage Learning.
Pittsburgh Milk v. Commissioner, 26 T.C. 707. United States Tax Court. 1956.
Prizes and awards. 26 CFR 1.74-1 (2003).
Purchase discounts and allowances, and refunds of expenses. 42 CFR 413.98 (2003).
United States v. General Dynamics, 481 U.S. 239. United States Supreme Court. 1987.
Yahoo!. The Price Is Right … and the Taxes Are High. Shine.yahoo.com. Retrieved August 22, 2013 from http://shine.yahoo.com/parenting/price-8230-taxes-high-174700410.html.
