Gold Medals = Taxable Income?

[Colonel_Buck]

Does anyone know how much gold is in an Olympic gold medal and are the eight medals that Michael Phelps won considered taxable income?

Also did you notice how many calories he ate every day and still had the physique he has?

[RyanMcC]

NEW YORK (MarketWatch) -- If Michael Phelps were to melt down the eight gold medals he won at the Beijing Olympics Games and sell the gold, he could probably only make about $1,225.

The famed gold medals are mostly made of silver, not gold. Only six grams, or 0.19 ounce, of gold is required to coat the medal. With gold futures closing at $806 an ounce on Monday, an Olympic gold medalist couldn't ask much more for the precious metal -- but the value of the precious medal would be much higher.

Rest of article.

February 15, 2006 - Tax Treatment of Olympic Athletes

Every two years, a topic of conversation among tax folks is the tax treatment of Olympic athletes. One issue is whether the medals themselves constitue income -- a tantalizing line is found in Commissioner v. Wills, 411 F.2d 537 (9th Cir. 1969), requiring Maury WIlls to report as income the value of the Hickok Belt he received for being named athlete of the year. The court noted:

The law as it presently exists requires the foregoing conclusion. We dislike it, for we are convinced it is an inequitable result. The next step would be for the Internal Revenue Service to tax the gold and silver in the medals awarded to Olympic Games' winners.

Has the IRS ever attempted to tax an Olympic medal winner? Reg. § 1.74-1(a)(2) suggests that the value of the medal should be included in income. If so, presumably the athlete would be able to deduct his or her training costs as an offset.

Rest of article.

12,000 calories per day is a lot.

[Doktor Avalanche]

Looks like he's stuck with all those worthless FRNs.

[fortinbras]

I am not even certain that there is much silver in the Olympic medals. There were news reports that the Beijing medals had a lot of lead.

I would assume that the medal - being a relic of the Olympics - has more value in its present condition than if it were melted down to its constituent metals. And it has, of course, the most value to the person who earned the medal. Although having won the medal rather naturally puts in him in line for other money-making endeavors, such as advertising endorsements, the medal itself does not have a market value until it is put on the market. I do not know of an Olympic medal that has been put up for sale, but in any case a current holder of a medal doesn't have a tax liability for the medal until he sells his own medal to someone else.

[SteveSy]

Doesn't matter if they were solid gold. If the IRS taxed one of these fine American's for medals they won showing how great America was they need to be frigging slapped in the face and spat on, not to mention other things.

[Nikki]

Didn't we have this same conversation, initiated by Steve, about 2 years ago?

[Quixote]

If the IRS taxed one of these fine American's ...

The income tax was imposed by Congress, not the IRS.

... they need to be frigging slapped in the face and spat on, not to mention other things.

You might get away with slapping Kay Bailey Hutchison, but Sheila Jackson Lee is likely to slap you back. I hear she practices on her staff.

[Demosthenes]

You might get away with slapping Kay Bailey Hutchison, but Sheila Jackson Lee is likely to slap you back. I hear she practices on her staff.

Snicker.

[Famspear]

For those of us old enough to remember Maury Wills of the Los Angeles Dodgers, this case may be interesting:

Wills v. Commissioner, 411 F.2d 537, 69-1 U.S. Tax Cas. (CCH) ¶9401 (9th Cir. 1969).

Wills was, of course, one of the greatest base runners in the history of major league baseball. The value of an MG automobile and the value of the "S. Rae Hickok belt" awarded to Wills for being the "most popular Dodger" and the "outstanding professional athlete", respectively, in 1962 constituted gross income to him in the year of receipt (paraphrasing the headnote in the CCH republication of the opinion of the Ninth Circuit Court of Appeals in the case).

See the current version of Internal Revenue Code section 74:

Sec. 74. PRIZES AND AWARDS

(a) GENERAL RULE. --Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.

(b) EXCEPTION FOR CERTAIN PRIZES AND AWARDS TRANSFERRED TO CHARITIES. --Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if --

(1) the recipient was selected without any action on his part to enter the contest or proceeding;

(2) the recipient is not required to render substantial future services as a condition to receiving the prize or award, and

(3) the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient.

(c) EXCEPTION FOR CERTAIN EMPLOYEE ACHIEVEMENT AWARDS. --

(1) IN GENERAL. --Gross income shall not include the value of an employee achievement award (as defined in section 274(j)) received by the taxpayer if the cost to the employer of the employee achievement award does not exceed the amount allowable as a deduction to the employer for the cost of the employee achievement award.

(2) EXCESS DEDUCTION AWARD. --If the cost to the employer of the employee achievement award received by the taxpayer exceeds the amount allowable as a deduction to the employer, then gross income includes the greater of --

(A) an amount equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award), or

(B) the amount by which the value of the award exceeds the amount allowable as a deduction to the employer.

The remaining portion of the value of such award shall not be included in the gross income of the recipient.

(3) TREATMENT OF TAX-EXEMPT EMPLOYERS. --In the case of an employer exempt from taxation under this subtitle, any reference in this subsection to the amount allowable as a deduction to the employer shall be treated as a reference to the amount which would be allowable as a deduction to the employer if the employer were not exempt from taxation under this subtitle.

(4) CROSS REFERENCE. --

For provisions excluding certain de minimis fringes from gross income, see section 132(e).

In ruling against Maury Wills -- ruling that the prizes were indeed taxable when received -- the Court stated:

Taxpayer here contends that we should reverse the decision of the Tax Court with respect to the car and the belt, for the reason that these awards were made for civic and artistic achievement. He cites no legal authority in support of this proposition.

A firmly established principle of statutory interpretation is that the words of statutes, including revenue acts, should be interpreted in their ordinary and usual senses wherever possible. Malat v. Riddell, 383 U. S. 569, 571 (1966); Hanover Bank v. Commissioner, 369 U. S. 672, 687 (1962); Commerce-Pacific, Inc. v. United States, 278 F. 2d 651, 654 (9th Cir.), cert. denied, 364 U. S. 872 (1960). The Tax Court considered the taxpayer's contention that his awards were for civic achievement, and rejected this characterization of his achievement. In other cases also, courts have been urged to regard certain achievements as civic or artistic, and have rejected such arguments in favor of construing these terms in their ordinary and usual senses.

In Hornung v. Commissioner, 47 T. C. 428 (1967), for example, the petitioner was a well-known professional football player who was awarded a new Corvette automobile for being selected as the outstanding player in the National Football League championship game. He asserted that this award was made in recognition of educational, artistic, scientific and civic activity, but the court concluded that the car was received in recognition of athletic achievement--which was not encompassed by the term of §74(b), as those terms are ordinarily understood.

The court in Hornung relied in large part upon the decision in Simmons v. United States, 308 F. 2d 160 (4th Cir. 1962). The court in Simmons rejected the contention that a prize presented for catching a particular fish was awarded for a "civic achievement" within the meaning of §74(b), and held that the crucial test for exemption under the statute is the nature of the activity being awarded. The court further refused to adopt the suggestion that the prize was for a civic achievement since it rewarded the taxpayer's skill as a fisherman, and stated that a "civic achievement" implies positive action which is exemplary, unselfish and broadly advantageous to the community. It was also noted that all the fields of endeavor listed in §74(b) represent activities enhancing in some way the public good.

In light of the above standards for characterizing an activity as a civic achievement, we cannot say that the Tax Court's finding that Wills received the car and belt for his popularity and athletic prowess and that these accomplishments did not constitute civic achievements, was clearly erroneous.

Nor can we hold that the Tax Court clearly erred in finding that Wills was not rewarded for artistic achievements. As the term "artistic" is ordinarily used, it connotes activities of an aesthetic nature, including, for example, painting, drawing, architecture, sculpture, poetry, music, dancing and dramatics. In normal parlance, athletic achievements are not regarded as "artistic," despite the great skill which is frequently necessary for athletic success.

We find further support for our decision in the fact that Congress has recently heard several proposals to add the word "athletic" to the list of exempted prizes in §74(b), but has, thus far, refused to do so. For example, on September 13, 1967, Senator Smathers, referring to the decision of the Tax Court in the present case, proposed such an amendment. See S. 2397, 90th Cong., 1st Sess., 113 CONG. REC. 25384-25385 (1967). When introducing his bill, he acknowledged that under the present statute there is a basis for taxing the recipient on the value of any award received for athletic achievement, and specifically stated that he did not mean to be critical of the Tax Court for the reason that the court correctly observed that Congress had not expressed itself on the question of athletic awards as it had with religious, charitable, scientific, educational, artistic, literary and civic awards. We note that had Senator Smathers' bill been enacted, it would have affected only awards received after the date of enactment. Thus, even if the amendment had been passed, it would not affect our decision in the present case. Similar bills were also introduced in the House of Representatives, but not passed. See H. R. 12453, 90th Cong., 1st Sess. (1967); H. R. 13190, 90th Cong., 1st Sess. (1967); H. R. 13823, 90th Cong., 1st Sess., (1967); H. R. 13825, 90th Cong., 1st Sess. (1967); H. R. 13875, 90th Cong., 1st Sess. (1967); H. R. 13946, 90th Cong., 1st Sess. (1967); H. R. 13979, 90th Cong., 1st Sess. (1967).

The taxpayer here makes the further argument that the Hickock belt should not be taxed because it is a "trophy." This argument has some equitable appeal, for the reason that a trophy is not a utilitarian item (such as an automobile) which the taxpayer would ordinarily purchase with his earned income. Yet the argument has no basis in the Internal Revenue Code. To agree, as the taxpayer does, the belt could be sold for some amount is to agree that the belt is the "equivalent of cash" in which case it is taxable when received. 2 Mertens, Law of Federal Income Taxation, Ch. 11 (1967). As previously stated, the critical criterion is the nature of the activity awarded. The Code draws no distinctions based on the form of the award.

If the award is in the form of property other than cash, the only problem is one of valuation--not taxability. Property thus received is to be taxed at its fair market value at the time of receipt. Treas. Reg. §1.74-1(a)(2). Koons v. United States, 315 F. 2d 542, 544-545 (9th Cir. 1963). Valuation is not an issue in the instant case, for the taxpayer has not disputed the Commissioner's evaluation.

Nor does the taxpayer here contend that the car and belt were received as gifts. Such a contention would seem to be precluded by Congress' intention in enacting §74, and by the absence of the requisite disinterested generosity. See Commissioner v. Duberstein, supra at 285, 290; Simmons v. United States, supra at 164.

(bolding added).

The Court also stated:

The law as it presently exists requires the foregoing conclusion [that the prizes are taxable to Wills, the recipient, when received]. We dislike it, for we are convinced it is an inequitable result. The next step would be for the Internal Revenue Service to tax the gold and silver in the medals awarded to Olympic Games' winners. Unfortunately for the taxpayer in this case, the court has no authority to legislate equities into the Internal Revenue Code or the Treasury Regulations. Both the problem and the remedy lie with the Congress, not with the courts.

However, according to the text, both of the prizes awarded to Maury Wills -- the automobile and the belt -- had clearly discernable, stated market values at the time of receipt. Therefore, one wonders how the rule would be applied if the prize has no clear market value.

[Colonel_Buck]

What if Maury had been awarded a square mile of land in downtown Los Angeles? Could that be taxed as income?

[LaVidaRoja]

Read Famspar's post---if the property has a clearly discernable value at the date of the award, it can be taxed as income on receipt. That will also provide a tax basis to the asset on sale.