YOU get a car! And YOU get a car!
On this day in 2004, talk show host Oprah Winfrey uttered those words to a studio audience. Moments later, amid the shrieks, 276 members of Winfrey’s studio audience each found themselves with a new Pontiac G-6 sedan. The cars carried an individual retail price tag of about $28,500.
While it felt like the best.gift.ever for members of the audience, the car wasn’t really a gift at all. The cars were part of a promotion for Pontiac (now defunct, but previously a brand of cars under the General Motors umbrella) to promote the G-6, a car introduced that same year as a replacement for the Grand Am. The moment, which was paid out of the car manufacturer’s advertising budget, was named #4 of the Top 25 Oprah’s Show Moments out of 4,000 episodes by TV Guide (because I know you’re wondering, it was passed by the wagon of fat, Tom Cruise jumping on a sofa and the flash mob dance featuring the Black Eyed Peas). Frank Brady, chairman of the mass communications department at St. John’s University in New York, called it “one of the great promotional stunts in the history of television.”
The free car was a hit for ratings, but some audience members claimed a bigger hit: to their wallets. It turns out that free isn’t always free. While General Motors handled the state sales tax on each of the new cars (around $1,800 per car), plus licensing fees, audience members were tasked with paying federal and state income taxes on the value of their new vehicle. To keep things simple, for reporting purposes, General Motors issued forms 1099-MISC to the recipients.
While actual taxes payable varied based on individual tax brackets, estimates settled around $7,000 per car. That was hard to swallow for many in the audience – especially when Oprah had reportedly asked her staff to seek out audience members who were in need of a car. Those weren’t taxpayers who were likely to have an extra $7,000 or so laying around. A Harpo Spokeswomen reportedly said at the time that the winners had three choices: they could keep the car and pay the tax, sell the car and pay the tax, or refuse the car.
It was confusing for many – including viewers at home – who didn’t understand why there might be taxes associated with the new cars. Why would there be taxes payable on a gift?
There’s an easy answer: the cars were not gifts. Remember, the cars were part of a promotion. Audience members were the lucky recipients of what could be considered prizes and prize winnings are subject to tax. It’s akin to winning the lottery, just in car form. You can find the specific – and simple – language focuses on prizes in the Tax Code here:
Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.
But the taxman would not stand in the way of one of the most powerful women in the country. Oprah continued to host giveaways to audience members. In 2010, in honor of her 25th and final season, Oprah gave her entire audience an all expense paid trip to Australia. This time, she really meant all expenses – including taxes. A CPA was reportedly waiting in the wings to settle all of the tax issues associated with the trip. You can see a list of Oprah’s favorite giveaway episodes here.
Winfrey, who rose to fame as a daytime talk show host, is now a director and producer and is the chief executive officer (CEO) of her own cable network, OWN. She was named one of Forbes’ Power Women in 2016. With an estimated net worth of $2.9 billion, she also made Forbes’ Billionaires list.
