Taxation policy and Gifts - Research Paper Example

Taxation policy and Gifts Oprah’s audience giveaway Giving out 276 Pontiac G6 sedans was one of the most philanthropic gesture that Oprah had ever done to her audience. However, little did the audience understand that receiving the Pontiac G6 sedans was not a mere gift and a positive aspect for their lives. The car, which was valued at 28,000 dollars at the time of issuing (2004) was subject to taxation, from both Oprah and the audience as well. The gifts issued to the audience were a form of income earned, which is subject to taxation.

Secondly, all game show winnings, such as the gesture illustrated by Oprah, are subject to taxation alongside gambling winnings, which is a little known fact to most civilians. Oprah’s gifts were already tax imposed at the time of purchase, and thus Oprah had in deed paid a substantial amount of VAT on the purchase of the sedans. However, the IRS law in Section 61 of the tax law of the United States stipulates that any addition to the gross income earned by any given individual is subject to taxation.

This indicated that with the taxation limits for income earned limits, 28% of the overall value of the vehicles was official property of the IRS, of $28,000 value for the respective vehicles each member received. The audience was then left with a great deal of debt to the IRS, which required each of the gift recipients to pay a tax of about $7,000 if they chose to keep their cars. Alternatively, the audience could sell their vehicles and resultantly pay off their taxes with the cash earned, then keep their extra proceeds.

One of the major cases in this case that was taken to court owing to a gift tax imposed on the recipient is the Sang J. Park and Won Kyung O v. Commissioner of Internal Revenue Service, where the IRS imposed tax on a gambling winner after just winning their gifts in a casino. In the winnings, the taxation was imposed on all winnings made by the people, whereas in the reality, the plaintiffs argued that they had lost an equal amount to that which had won, and yet their winnings were taxed heavily, not even considering their respective incomes lost in the gambling processes.

The taxation rates did not consider the amount of income used before getting the winnings, which led the Korean businessman to sue the IRS for their incompetence. In another case, Burnet v. Guggenheim (1993), where the ruling was passed arguing that a gift is taxable on the recipient after the donor has denounced or lacks power to control the trust, since the gift is thus imposed on the recipient as the official owner of the gift accorded to them by their donors. The revocation of the donor’s power to control the trust deems the property now official property of the recipient as the official owner of the estate in question.

This is the similar case as Oprah’s gift issuing menace, where after each of the members of the audience received the gift, it was in their power whether to accept or decline the gift issued, thus showing that the power of ownership had been directly transferred to the recipients, hence they were subject to taxation for the products acquired. World Furniture Mall labor day giveaway The storeowner of world furniture mall, a huge bear fan, offered a $275,000 giveaway worth of furniture if the Chicago Bears outdid the Green Bars in a match.

After the bears shut out the Bars from their winning streak, the storeowner gave $275,000 worth of furniture to buyers on the Labor Day of 2006, which raises the question about the taxation of the gifts issued that day. Unlike the preceding case, it is evident that the giveaway was not based entirely on the transfer of ownership but would rather be treated as a rebate, since the buyers received the gifts as discounts as opposed to gifts. Taxation is only imposed on gross income despite the source of the income but in this case, the gifts were a rebate, since the purchases made were all purposeful purchases whose prices had been adjusted, thus not impacting the gross income of the buyers in any way, as stipulated by the IRS Rev. Rul. 76-96 1976-1 C.B. 23 (IRS, 2001).

The gifts were treated as a rebate, which is nontaxable; hence, none of the beneficiaries of the Labor Day purchases were taxed on the products they purchased, and this being the case a refund on purchases made on labor day was enacted. This was not a gift but rather a reimbursement for the purchases made, which thus was treated as a price adjustment. As such, since the purchasers of the products did not receive any incentives nor were they employees of the store, issuing a Form of 1099-MISC, would have had no effect on the taxation policy of the products sold to the buyers (IRS, 2013).

According to the Rev. Rul. 88-95, 1988-2 C.B. 28, the gifts would only and solely be treated as reductions in the price of the products, hence not liable to taxation (Internal Revenue Service, 2009). References Estate of Sanford v. Commissioner, 308 U.S. 39 (1939) Estate of Sanford v. Commissioner of Internal Revenue No. 34 Argued October 18, 19, 1939 Decided November 6, 1939 308 U.S. 39. Retrieved on December 1, 2013 http://supreme.justia.com/cases/federal/us/308/39/case.html Burnet v. Guggenheim, 288 U.S. 280 (1933) Burnet v.

Guggenheim No. 283 Argued January 11, 1933 Decided February 6, 1933 288 U.S. 280. ). Retrieved on December 1, 2013 http://supreme.justia.com/cases/federal/us/288/280/ NBC News. Bear’s shut out means free furniture. Retrieved on December 1, 2013 from http://www.nbcnews.com/id/14801823/#.Uptf_eJmL3g IRS. (February 26, 2001). Internal revenue bulletin: Bulletin No. 2001–9 February 26, 2001. Retrieved on December 1, 2013 from http://www.irs.gov/pub/irs-irbs/irb01-09.pdf Internal Revenue Service.

(November 6, 2009). Rulings Requested. . Retrieved on December 1, 2013 from http://www.irs.gov/pub/irs-wd/0945022.pdf IRS. (November 14, 2013). Form 1099-MISC, Miscellaneous Income. Retrieved on December 1, 2013 from http://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-