Olympic Medal Taxation Craziness

Annette Nellen

Every four years we usually see at least one bill introduced in Congress to make Olympic medals and related prize winnings (such as cash) non-taxable to the athletes. Why? There is no good reason for excluding this prize income. All prizes are taxable because they are an accession to wealth which is what our income tax system is based upon. If you win a raffle or win on Jeopardy!, the prizes are taxable.

Why should an Olympic medal be different?

Possible reasons offered:

  • The athletes are representing the U.S. Sounds patriotic but the winnings are still income and we could come up with all kinds of reasons to make all income non-taxable if we tried. For example, people who work in hospitals are helping people, perhaps we should exempt their income from tax?
  • The athlete might have to sell their medal to pay the tax. This is weak because the metal value is under $1,000. (See Forbes article by DeMarco for the estimate based on the value of gold and silver today.) Also, the U.S. athletes also get cash from the US Olympic Committee, reportedly $25K for gold, $15,000 for silver and $10,000 for bronze. Not bad. Yes, they incur a lot of costs to prepare, but so do students earning college degrees and their income is taxed.
  • The athletes are low income. If they are low income, the tax system will already put them in a zero or very low tax bracket. But they are not all low income. While not all have the estimated $50 million net worth of Michael Phelps, many do earn a lot of money from sponsorships or employment.

S. 2650 would exempt the value of the medal and cash prizes from the U.S. Olympic Committee. It passed the Senate on July 12 and a version is being considered by the House (H.R. 2628).

California has also joined in this craziness. AB 1944 would exempt the value of Olympic medals and associated cash prizes from California income tax through 2020.

These proposals don’t meet most of the principles of good tax policy. Most importantly, they don’t meet the principle of equity and fairness. Olympic medal income is really no different from any other type of taxable income. There is no reason to exempt it from taxable income.

Should Olympic prizes be taxed? Let us know in the comments section.

 

 

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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6 comments on “Olympic Medal Taxation Craziness

  • I have to draw a line in the sand. With all the tensions that have been dragged around recently in our own country, the Olympics place the Olympians as “Americans”.

    I personally believe they won the medals for the United States of America and not for the income!! I also believe the American Flag should not be taxed by any state taxing agency. However, every state wants a piece of the pot as well as the Federal Government. No pride in that scenario. Hi Ho, Hi Ho, it’s off to Tax we go!

    I would rather think we honor those who have sacrificed rather than beat the tax out of them.

    Is the United States so desperate for tax dollars the Olympians win in the base of gold, silver and bronze really going to make such a huge impact that neither presidential candidate will not raise taxes on anyone?

    I have some ocean front property in Kansas to sale if one thinks this is true!

  • Thanks for the comment. I’m not convinced though. The athletes compete more for themselves than the U.S. And even if doing it for America then why not also exempt any winnings for competing in any international events? While we are talking small dollars here, that is no reason alone to exempt income from tax. Equity and fairness say it should be taxed. If Congress wants to change the law to help true Americans, why wouldn’t they start with members of the military. Only their combat pay is exempt.

  • I don’t understand why the Olympic medals are taxed based on their value. Do the Williams’ sisters pay tax on the value of their Wimbledon Trophy? Do golfers pay tax on the value of their trophies? Do the Super Bowl winners pay a tax on the value of their super bowl rings? The cash winnings – yes, definitely; but a piece of metal?

    • Good question. I think it is easier to see something likely is taxable when received in the form of cash or a car. But generally, anything received of value is taxable unless there is an exclusion for it, such as a gift. There is a tax case from the late 1960’s involving a baseball player who received the Hickok Belt which is something elaborate and was estimated to be worth over $6,000. The IRS, Tax Court and Ninth Circuit Court found that the belt was taxable.

      Per the Ninth Circuit: “The taxpayer here makes the further argument that the Hickok belt should not be taxed because it is a “trophy.” This argument has some equitable appeal, for the reason that a trophy is not a utilitarian item (such as an automobile) which the taxpayer would ordinarily purchase with his earned income. Yet the argument has no basis in the Internal Revenue Code. To agree, as the taxpayer does, the belt could be sold for some amount is to agree that the belt is the “equivalent of cash” in which case it is taxable when received. … As previously stated, the crucial criterion is the nature of the activity awarded. The Code draws no distinctions based on the form of the award. If the award is in the form of property other than cash, the only problem is one of valuation—not taxability. Property thus received is to be taxed at its fair market value at the time of receipt” [Wills, 411 F2d 537 (9th Cir. 1969)]

      The Olympic medals have value for their medal content and the fact that they were some winner’s medal. A trophy without any resale value is not going to represent taxable income.

  • If you think it’s good tax policy to tax the medals, then I assume you believe it’s also good tax policy to deduct all the expenses (a lifetime of training expenses) that were paid to reach the standard required to win the medal.

    • The tax law doesn’t work that way. Our tax system if broad in including income, but not so in allowing deductions. There has to be a rule allowing them. The athlete is not in a business so they are not business deductions. It might be an activity not engaged in for profit (a hobby) where the expenses can be deducted up to the amount of income but only deducted as a miscellaneous itemized deduction.

      If this seems unfair to the athlete, consider that people can’t deduct the cost of their college education against their future income even if it might be related.

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