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Audience participation

Published: Dec 17, 2004 2:10 p.m. ET


Oprah's car winners still have an IRS screening


Tax columnist

LOS ANGELES (CBS.MW) -- Chicago-area resident Jennifer Zipp always wanted to visit The Oprah Show. In September, she finally went. Did the show live up to all her expectations? You bet it did. She and her mother each walked out owning a new Pontiac G-6!

So far this year, Oprah's audiences have received about $10 million worth of goodies. She opened her 2004-2005 season by giving a Pontiac G6 worth more than $28,000 to everyone in the audience. On another show, Oprah saluted teachers and gave each teacher in her audience about $8,000 worth of her favorite things.

And Oprah isn't alone among talk-show hands in handing out freebies. Tony Danza's entire audience got trips to Miami's Fontainebleau Resort. Ellen Degeneres's audience gets cruises.

That's a lot of fun and excitement for being in a studio audience. But if those lucky attendees aren't careful, their next audience may be in front of an IRS examiner.

That's because there are tax consequences. But what? Floyd Greenman, a Northridge, Calif., enrolled agent asks just how should those people be reporting Oprah's cars? Should they be disregarded, treating that as gifts? Or should they be taxed -- and as what?

Greenman, a former IRS auditor with over a decade of dealing with such issues, pointed out that for these things to be a prize or an award, the recipient had to do something to earn it. These people did nothing but show up and sit in the audience seats. They didn't call in, answer any questions, take any quizzes, or eat any disgusting creatures. So shouldn't we be treating the cars as gifts?

Roger A. Adams, an enrolled agent in Portugal, agreed with Greenman. Aside from Adams' extensive tax-research background, he happens to be one of the King World Enterprises executives who was involved with taking the Oprah Winfrey Show national in the 1980s. So he was really interested in this particular issue.

What does IRS say?

Unfortunately for the winners, the IRS disagrees with both men.

When Don Roberts, an IRS spokesman was asked how IRS wants these cars reported, he was already familiar with that episode of Oprah. Roberts pointed out that, in this case, the audience did do something. They applied to get on this particular show. Oprah had put out a call for people who needed cars.

Zipp, though, says she just got lucky. She and her mother were invited just to fill in the seats in the studio. Mom has already received her fully loaded, silver-gray Pontiac G6. Jennifer will get hers next year.

Regardless, says Roberts, it doesn't matter if they were selected or just happened to be present and received these items. Section 74 was added to the Internal Revenue Code specifically to address radio and television giveaways, Roberts says: There is no formal definition of prize or award in the Code itself. IRS Regulation 1.74-1 states:

"Prizes or awards which are includible in gross income include (but are not limited to) amounts received from radio and television giveaway shows ..." 

The code does not say that an amount received from a giveaway has to be called a prize or be the result of some sort of contest -- because it's an "amount received," it's included in income as a prize, he said.

IRS's legal department pulled a stack of citations to support this position. Their arguments are convincing. So, if you're a winner, be certain that IRS will be looking for that income on your tax return.

When is a gift not a gift?

Mark Steber, a certified public accountant and vice president of tax resources at Jackson Hewitt Tax Service in Sarasota, Fla., and his assistant, Jo Willets, an enrolled agent, researched the question. They found a great deal of commentary, dropping the subject of giving into 4 buckets: gifts, prizes, winning and awards.

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