Taxpayer asks:
I was watching Top Chef Masters and I ahd a question. I know you have to report your winnings on a game show. On the Masters version, the chefs don’t get the money because it goes to charity. My question is can they take a tax deduction?
taxgirl says:
I haven’t seen Top Chef: Masters all season so I made an effort to catch up a bit tonight after reading your question.
In the Masters edition, the cheftestants (yes, I’m using that word even though I hate it – but only once) win money for their respective charities. The amounts vary, depending on the type of challenge (for example, quickfire challenges tend to be worth less than the elimination challenges).
Clearly, I’m not privy to the terms in the contracts that these folks sign so I’m going to speculate. Normally, as you pointed out, winnings from a game or TV show are taxable (just ask Richard Hatch). In this case, however, the chefs don’t receive the winnings since they are donated to charity.
If it works as portrayed on TV, there should be no charitable deduction for the chefs. The chefs don’t actually receive the funds (or directly control the funds) so they should never take it into income. In order to claim the deduction from a donation made from these winnings, the chefs would have to first claim the winnings and then make the donation. That isn’t what appears to happen on Top Chef: Masters. It appears instead that the chefs earmark a charity to receive their winnings, if they have any, and that selection is irrevocable. The money is then paid over directly to the charity. The chef doesn’t have the option to limit the amount of the payment or change the named charity.
Bottom line: I don’t think they claim the income or the deduction. I think appearing on the show is a fairly tax-neutral event for the chefs. But if someone in the know has different info, do tell.
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I am not in the know, but there might be a benefit of giving the winnings directly to the organization. If the winner first receives the winnings, then the amount is taxable, and withholdings are required. However, by giving it to the non-profit directly, you save the tax, since the non-profit are usually not required to pay taxes on winnings.
How about this, upon winning, they ask the winner what he/she wants. Either the full amount goes directly to the Non-profit organization, with no withholdings, or they give it to the winner, so he/she can use it as a deduction, but will have to withhold taxes, so the non-profit organization won’t be getting the full amount. This will ultimately depend on the winner’s determination to help the charities.
Now, do the charities have to claim or pay any taxes on the gift money? Or because it’s a donation is it free from taxation? I know that when I’ve won gifts I’ve had to claim the money on my taxes, but then again, I’m not a charitable organization…!
Brian,
When you say that you “won” a gift, what you actually got is a prize. Prizes are taxable income to the recipients, gifts are not.
You might remember the controversy over Oprah Winfrey’s car giveaway on her show, where the “lucky” recipients were informed that they had actually won a prize, not been given a gift, and that the FMV of the vehicle was to be included in their income for the year. Broadly speaking, you are given a gift when there is no contractual obligation on either the donor’s part or the donee’s part to transfer the property. If your mother decides to give you a car out of the goodness of her heart, that’s a fully tax-free gift. However, when there *is* a contractual obligation, the transfer of property becomes a prize/award, which is fully taxable. In the case of Oprah’s show, there WAS a contractual obligation on Oprah’s part to award the cars (it was a promotional arrangement with GM), which made them fully taxable prizes, not gifts.
That’s what makes this situation interesting, and as Kelly indicates it really depends on how the contracts are worded. My speculation parallels Kelly’s; I believe that it’s likely the cheftestants are never in “constructive receipt” of their winnings and therefore (a) don’t claim the income and (b) don’t get to take the deduction.