Subscribe to this BlogWill Obama pay taxes on his Nobel?
The White House says President Obama will donate the $1.4 million in cash that comes with his Nobel Peace prize. Which made us wonder: What are the tax implications of this?
Over at Politico, Josh Gerstein reports on some of the possible legal complications of accepting the monetary award, even if the President immediately gives it away. His source suggests that Obama could, among other things, end up owing some tax.
Maybe only if he has a terrible accountant. As the Politico item notes at the end, there's an exception. Kail Padgett at the Tax Foundation's blog points us to the relevant section of the IRS tax instructions. One surprise: It actually mentions the Nobel. Here it is:
Pulitzer, Nobel, and similar prizes. If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income. However, you do not include this prize in your income if you meet all of the following requirements.
- You were selected without any action on your part to enter the contest or proceeding.
- You are not required to perform substantial future services as a condition for receiving the prize or award.
- The prize or award is transferred by the payer directly to a governmental unit or tax-exempt charitable organization as designated by you. The following conditions apply to the transfer.
- You cannot use the prize or award before it is transferred.
- You should provide the designation before the prize or award is presented to prevent a disqualifying use. The designation should contain:
- The purpose of the designation by making a reference to section 74(b)(3) of the Internal Revenue Code,
- A description of the prize or award,
- The name and address of the organization to receive the prize or award,
- Your name, address, and taxpayer identification number, and
- Your signature and the date signed.
- In the case of an unexpected presentation, you must return the prize or award before using it (or spending, depositing, investing it, etc., in the case of money) and then prepare the statement as described in (b).
- After the transfer, you should receive from the payer a written response stating when and to whom the designated amounts were transferred.
Long story short: It looks like Obama will be okay with the IRS as long as the money goes directly to charity. But he'd better get a receipt from the Norwegians.
Update: At TaxProf Blog, tax law professor Ellen Aprill points out that Obama might be okay even without the rule above. You can deduct charitable contributions up to 50% of AGI, and Obama's income from sales of his book may be high enough to put him in the clear. Aprill speculates that even if it isn't, Obama might decide to declare the income anyway, for political purposes. Not sure I see the point of that… is there really that much hay to be made over Obama not paying taxes on money he didn't ask for and didn't take?
The award does not meet this criteria. It fails the second statement, as this award was given to him for what he will "accomplish" in the future that aligns with what the Norwegians want. If he wasn't going to perform these substantial future services, he would have never won this award. Therefore it is taxable.
But Damien (and Travis) the whole point is that there IS a provision in tax code that allows Obama, or anyone else receiving a similar kind of prize, to not include it in income provided he gives it away in the proper manner.
Why not donate the money back to the taxpayers, to compensate for the trip to Denmark and the trip to collect the prize itself. Should just about balance out.
According the the Code, all income must be included in gross income unless there is a provision in the Code providing otherwise.
This includes income that the taxpayer has not sought or asked for. If a person catches a valuable home run ball, he/she still must include the fair market value of the ball in his/her gross income.
He wants to tax the heck out of Americans. It might as well start with him.
Joe Louis gave all the money he made for two big fights to army relief and navy relief, and the IRS nailed him to the wall for taxes on money he didn't even keep! So don't say that the IRS doesn't come after people for money even though they give it away and don't even keep it. Trust is something earned.
Obama is the President, he is getting paid to do the job as President. Part of that job is ensuring this country is protected along with unfortunate countries who need our help. He's being rewarded for doing his job. What's so extrodinary about that. Marines and Soliders are fighting and dying for bringing democracy to other countries, where's their reward? A thank you when they come home, a medal on their chest. Enjoy Mr. President. But I don't believe he should receive the award or the prize money. If anything the money and award belongs to the American government, a lot of law makers, joint chiefs, had a hand in his "achievement." He didn't do it a lone, maybe his idea, maybe, but he had ALOT of help.
Wasn't it the Obama administration that wanted to limit the tax deduction on charitable giving? Even if he donated it all, he would still owe tax if he had his way. What's good for the goose is good for the gander. Why do I get the feeling that it wouldn't apply to him?
This shouldn't be taxable. Recipient of this prize are persons who has worked hard and should be able to have a tax break. This give President Obama one more problem to make right.
This is still unclear. Such prizes should not be taxable. The Nobels recognize outstanding human achievement and the winners deserve to keep the full amount of the prize. Only in America?
Under the concept of constructive receipt, if Obama doesn't take advantage of the Nobel exclusion he is legally obligated to report the income, regardless of the fact that he donated it to charity. He would be required to disclose the constructive receipt of the award on Lin 21 of his 1040 and then deduct the applicable amount as charitable contributions on Line 16 of his Schedule A.
Yes, there's a good chance that his Presidential salary, book sales, and other interests will push his AGI to a point that the entire $1.4 million would be deductible. The point, however, is that the money MUST be claimed as income.
When his camp says they "might decide to declare the income anyway, for political purposes", well, that's just saying that they don't want the President to follow in the footsteps of so many of his appointees by being called a tax cheat.
If you will the Nobel Prize, just declare the $ 1.4 mil. on page 1 of 1040; the deduct it on Schedule A -Charitable donations which comes out of the Income on Page 2 of 1040.
Add $ 1.4 mil. to Income and deduct the same ( donated amt.) Will not change the Tax owed; will increase the AGI, thus limiting some deductions & ? increasing the AMT, but that should be minimal.