Oscar De La Hoya turned a little more golden over the weekend. Canelo Alvarez, managed by De La Hoya’s Golden Boy Promotions, bested Miguel Cotto on Saturday night by unanimous decision, claiming the WBC middleweight title.
The win puts Alvarez in the superstar category for now – and chalks up another victory for Golden Boy Promotions.
The win also netted De La Hoya $100,000 for the charity of his choice. Reportedly, De La Hoya had a side bet with rapper Jay Z. Jay Z had more than a little bit of interest in the outcome of the match: his Roc Nation manages Cotto, who suffered the loss to Alvarez.
With the loss, Jay Z will pay $100,000 to charity – most likely White Memorial Medical Center’s cancer unit. The cancer unit is named the Cecilia Gonzalez De La Hoya Cancer Center, after De La Hoya’s mom.
Since Jay Z is paying the funds over to a qualified charity, it raises an interesting question: is the payment considered a charitable donation, a gambling loss or both?
For federal income tax purposes, it can’t be both: there’s no double dipping.
Generally, when you have a choice of which tax benefit to claim, you’d run the numbers to see which provides the best result. In this case, gambling losses and charitable deductions are both reportable on a Schedule A. That means that you have to itemize your deductions in order to claim either deduction – fortunately, for Jay Z, it’s highly likely that he itemizes.
Gambling losses are deductible only to the extent of gambling winnings. Charitable donations, assuming that they are made to qualifying public charities, are generally deductible up to 50% of your adjusted gross income (it’s worth noting that charitable donations to veterans’ organizations, fraternal societies, nonprofit cemeteries and certain private foundations are only deductible up to 30% of your adjusted gross income). The amount at issue here, $100,000, probably doesn’t pose any issue for either.
But does that mean that Jay Z would be able to pick and choose which tax benefit to claim? Probably not in this case.
Assuming that the bet is both legal and enforceable, it’s a proper gambling loss. And De La Hoya could have, I suppose, ask to be paid in Beyoncé records or Armand de Brignac champagne. But he didn’t: he directed that Jay Z pay over to a charity. That specific direction should mean that Jay Z no longer passes the test for donative intent.
Donative intent? I know. You thought all you had to do was write a check to charity. But part of the requirement for a proper charitable deduction is donative intent, or charitable motive. The Supreme Court explained the concept in Commissioner v. Duberstein, 363 U.S. 278 (1960), where it affirmed that a gift as motivated by “detached and disinterested generosity.” The following year, in DeJong v. Commissioner, 36 T.C. 896 (1961), aff’d, 309 F.2d 373 (1962), the Ninth Circuit found that a charitable donation must include some form of donative intent in order to qualify as a charitable deduction:
The value of a gift may be excluded from gross income only if the gift proceeds from a “detached and disinterested generosity” or “out of affection, admiration, charity or like impulses” and must be included if the claimed gift proceeds primarily from “the constraining force of any moral or legal duty” or from “the incentive of anticipated benefit of an economic nature.” We must conclude that such criteria are clearly applicable to a charitable deduction under §170. (emphasis added)
Similarly, the Tax Court attached the “detached and disinterested generosity” principal to individual charitable donations in Howard v. Commissioner, 39 T.C. 833 (1963).
Chances are, the Internal Revenue Service (IRS) would find that following a direction to make a charitable donation because of a lost bet equals a lack of a donative intent. I would agree, again, assuming that the bet was legal and enforceable.
If, however, the bet were illegal, then the promise to pay would be unenforceable (discounting any threats of broken legs or other punishments). In that event, if Jay Z went ahead and made the contribution, I would suggest he would have an argument for claiming a charitable deduction. In that event, if he didn’t have to make good on the bet but he did away, the donation feels charitable.
Either way, the loss of the bet is good for a deduction – it’s just a matter of which line to put it on. The real win is one for the charity.Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.