Saturday, July 16, 2005

Fun story: a man turns down prize because of Tax reasons!

Of course, only in the US this story is news! The issue of gift taxation is everywhere, but in the US everything is news. Read an interesting published by Wall Street Journal about Jack McCall, who won an American Airlines contest but turned down the prize of 12 round-trip coach tickets for two (for U.S. or international travel) because of tax considerations.
The contest, launched as part of the airline's We Know Why You Fly marketing campaign, awarded free tickets to travelers submitting the best videos, essays or photographs about their flying experiences. The grand prize winners were offered 12 round-trip restricted coach tickets for two from the U.S. to anywhere in the world American flies. In exchange, American has the right to use the winning materials for promotional purposes.
The contest's fine print explains that winners must pay federal and state income taxes, where applicable, on American's "approximate retail value" of the 12 round-trip tickets for two, which the airline valued at $52,800, or $2,200 per ticket.
Jack McCall, a New York resident who won American's grand prize in the video category by submitting a video montage of snapshots he and his wife collected during their travels around the world, estimates that federal, state and local taxes on the prize could amount to roughly $19,000, given the couple's probable federal tax bracket and because they live in New York City, where income taxes are high. That's equivalent to about $800 for each of the 24 tickets.
And in today's cut-rate airline pricing environment, American's valuation is far more than a winner would likely pay if he or she simply bought the tickets. The result: The tax bill could be higher than the tickets actually sell for.
McCall declined the prize. The IRS, in an effort to keep from looking too bad, claimed that McCall could have tried to work out a way to better value the prizes. Right. Trust that the IRS would be nice, and not demand the most money they can squeeze out of the deal? Yeah, sure!


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