Olympic Medals Taxable

Go For The Gold And Pay Your Victory Tax – Olympic Medals Taxable

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Go For The Gold And Pay Your Victory Tax – Olympic Medals Taxable

While millions of Americans were glued to their televisions to watch American athletes compete in this year’s Summer Olympics, the Internal Revenue Service was getting ready to make sure that all our Olympic winners pay taxes on their victories.

The Internal Revenue Code mandates that if you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $100 prize in a marathon, you must report this income on your Form 1040. Now if you refuse to accept a prize, then you do not include its value in your income. All prizes and awards in goods or services that you accept must be included in your income at their fair market value.

The impact to a U.S. athlete who wins in the Olympics is that their prize is no different than you winning the lottery.  America’s Olympic medalists must pay state and federal taxes on the prize money they get for winning. The U.S. Olympic Committee awards $25,000 for gold medals, $15,000 for silver and $10,000 for bronze.

But besides picking up the prize money as income, Olympians also have to pay tax on the value of the medals themselves.  It’s not enough for the IRS to tax a U.S. athlete on the prize money but also to tax the metal.  Gold and silver medals are made mostly of silver, while bronze medals are composed of mostly copper. Rio’s medals are among the largest and heaviest ever and contain about 500 grams of either silver or copper.  The value of a gold medal is about $564; silver is worth about $305. Bronze is worth a negligible amount so it’s not taxed.  Any athlete who accepts his or her Olympic medal and does not have to forfeit it will have to report its value as income and pay taxes on it. It does not matter that the competition took place in Brazil and not the United States.

Winning Olympic athletes from most other countries don’t have to worry about their medals being taxed. This unfairness has resulted in considerable debate during each session of Congress when a Summer or Winter Olympics is held but any legislation to change the tax law has never made it out of Congress. Leading up the 2016 Summer Olympics there is proposed federal legislation that would make “the value of any medal or prize money” awarded during the Olympics or Paralympics exempt from income taxes. The bill was passed by the Senate in July 2016 but like its predecessors, will lose momentum as the Summer 2016 Olympics fades into the past.

You would think most Americans would be in favor of the legislation but there appears to be some backlash.  For example, should an Olympian who comes home with four medals conceivably make $100,000 tax free while millions of hard working Americans struggle to support their families on far less income yet have to pay taxes?  Then of course one should recognize that the U.S. is the only major country that doesn’t provide government funding to its Olympians. Now a handful of lucky athletes land lucrative endorsement deals. But most of them rely on small stipends from the USOC, support from local businesses or supplemental income from a day job.

Despite which side of the argument you may stand, you need to remember that even income earned outside the U.S. may be taxable. Every year, thousands of U.S. taxpayers learn that lesson the hard way. If you live, compete or work outside the United States, you must still file tax returns here. In addition, if you win a prize or award, you must claim the value of that prize or award on your tax return as income.

I am not so convinced that an income exclusion for Olympians and Paralympians would change anything. Cutting taxes isn’t going to fix the fact that these athletes don’t get paid enough. And then how do you distinguish this from other individuals who win prestigious awards. Such is the case with Nobel prize winners who receive more prize money — around $1 million. Shouldn’t an award for such an accomplishment also be tax free? This is something maybe to write to your Congressman about.

 

Foreign Gifts and Inheritances – When Do You Need to File Form 3520?

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If you receive a gift or inheritance from a foreign person or other foreign entity, you may need to file Form 3520- Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

Is it foreign income or a foreign gift or bequest?

The first step in determining if you need to report your foreign gift or bequest to the IRS is to determine if the cash or property received is income or can be characterized as a gift. Income, of course, would be reported as income on your personal income tax return. If there were payments made to you in previous years that should have been characterized as income and you did not report that income on your U.S. income tax returns, you should seriously consider entering into the Offshore Voluntary Disclosure Initiative (OVDI) to avoid the maximum civil penalties and avoid criminal charges Amounts paid for qualified tuition or medical bills on behalf of a U.S. person are not considered gifts or income.   If the money or property received from the foreign person or entity can be rightfully characterized as a gift or bequest, then you need to consider whether you meet the filing thresholds to report the gifts.
What is the value of the foreign gift or bequest?

If during the course of a calendar year:

(a) The value of the gifts and bequests received from a nonresident alien individual or foreign estate, which must also include gifts or bequests received from foreign persons related to the nonresident alien individual or foreign estate, exceeds $100,000, OR

 

(b) The value of the gifts received from foreign corporations or foreign partnerships, which must also include gifts received from foreign persons related to the foreign corporations or partnerships, exceeds $15,102 in 2013, or $15,358 in 2014 (this value is adjusted annually for inflation),

THEN you must file Form 3520.

Where the donor (the person making the gift) is related to another donor, the IRS requires that you must aggregate these gifts to determine whether the filing threshold is met.  For example, if your uncle in Pakistan gives you $50,000 and your aunt in India gives you $60,000 in the same year, the sum of their gifts would mandate that the $100,000 filing threshold was met.   These gifts would be reported on Part IV of Form 3520.

Where and when to file Form 3520?

Form 3520 is filed separately from your income tax return.  The due date for filing Form 3520 is the same as the dues date for filing your federal individual income tax return, including extensions.  The form should be sent to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.

There may be penalties if you do not file your Form 3520 or if it is incomplete or inaccurate.  For foreign gifts, you may be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest for each month for which failure to report continues. For distributions from foreign entities, the penalty is equal to the greater of $10,000 or 35% of the gross value of the distributions from the foreign entity.

U.S. taxpayers who receive a gift or inheritance from a foreign person or other foreign entity would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with the receipt of foreign gifts.

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