Will 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.

  1. You were selected without any action on your part to enter the contest or proceeding.
  2. You are not required to perform substantial future services as a condition for receiving the prize or award.
  3. 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.
    1. You cannot use the prize or award before it is transferred.
    2. You should provide the designation before the prize or award is presented to prevent a disqualifying use. The designation should contain:
      1. The purpose of the designation by making a reference to section 74(b)(3) of the Internal Revenue Code,
      2. A description of the prize or award,
      3. The name and address of the organization to receive the prize or award,
      4. Your name, address, and taxpayer identification number, and
      5. Your signature and the date signed.
    3. 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).
    4. 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?

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