Olympics Tax Fun

For the summer Olympics of 2016, I wrote an article on what a State Tax Decathlon could look like. Here are the events:

1. The Jock Tax Challenge – calculate state taxes for professional athlete
2. Multistate File and Plan for individual with activities in 10 states
3. The Business Split – calculate state taxes for multistate business in states with differing sourcing and apportionment
4. Nexus Confidence – based on given facts, does taxpayer have nexus in the state?
5. Amicus Drafting – research and draft brief with references to at least 30 cases
6. Power of the People – draft ballot materials for a state tax initiative
7. Harmony – draft federal legislation acceptable to all stakeholders
8. Dust It Off – persuade a state legislature to hold hearing and take action on a report of a state tax commission
9. Base Broadening – make convincing arguments on why a state tax incentive for business should be repealed
10. Tax Literacy – design education plan for high school students to understand their state’s tax system and compliance obligations

For more details, see "The State Tax Decathlon," Tax Notes State, 9/12/16 (with some background on the decathlon too).

For the summer Olympics of 2020, I wrote about "The State Tax Pentathlon," Tax Notes State, 8/16/21 (the 2020 Olympics were postponed to 2021 due to Covid). One of the tax events: Speed Answering — Like the horse riding and jumping event where athletes do not know the horse they will be assigned, contestants must answer questions from the taxpayer and practitioner phone lines of any 12 randomly selected state tax agencies. Points are awarded for accuracy, clarity, and politeness.

I'm not writing about the 2024 Olympics due to time constraints, BUT, what would you suggest to update my decathlon list form 2016?

Olympic Winnings Exclusion on to the White House - Don't Sign It!

Continuing with a recent theme in this blog - here is an update on federal legislation to not tax winnings of Olympic athletes.  That is, the value of the medal and the cash from the U.S. Olympic Committee will be tax free.  H.R. 5946 has now passed in the House and Senate, so will soon be off to the White House.

Along the way, a major change was made ... If the Olympic medal winner has modified AGI over $1 million, he has to report the winnings!  This amendment addresses the oddity of giving an exclusion to Michael Phelps and the men's basketball team players and other high-income winners.

As noted in my 9/14 post, this bill only results in a revenue loss of about $3 million over ten years. In our trillion dollar budget, this is nothing. But that is no reason to enact this change.  [also see 8/17 post] Additional reasons not to enact this legislation:

• It is not needed. The winning athletes will have enough money to pay taxes on the winnings because the bulk of the winnings are in cash.
• Some are likely low income and the bronze or silver prize alone might not be enough to put them into a taxable bracket.
• The fact that they incur a lot of costs to participate is no reason for the tax break as this is true of many people. For example, college students spend a lot of money to attend college.
• The fact that they represent the US in the games is a weak justification for the bill. The benefits the athletes receive will benefit them, and the U.S. a lot less (other than from taxes from winnings!)
• If there is a desire to change the law to help those representing the U.S. why not start with the military?
• Adding unnecessary rules to the tax law (we have over 200 of them already) just makes the tax system more complex, inefficient and inequitable.

What do  you think?

Does small revenue loss justify bad tax law? No

More on legislative efforts to give a tax break to winning Olympians(!) ...

See my 8/17/16 post for background.  This post got a lot of comments both here and on Tax Connections.

An update: H.R. 5946, U.S. Appreciation for Olympians and Paralympians Act, would modify §74 to exclude from income the value of medals and prize money received for competition in the Olympic or Paralympic Games. A similar bill, S. 2650, passed in the Senate on 7/12/16. Also see H.R. 2628, Tax Exemptions for American Medalists Act of 2015 (TEAM Act), applicable to awards received after 2014. S. 2650 and H.R. 5946 would be effective for awards received after 2015.

The Joint Committee on Taxation estimates that cost of this bill at $3 million over ten years (JCX-72-16 (9/13/16).

While $3 million cost over ten years is less than a rounding error in the federal budget, this does not justify enacting an unnecessary provision that violates many principles of good tax policy such as equity and neutrality.  Also, will this open the door to others seeking low cost changes to save them taxes? 

What do you think?

Olympic Medal Taxation Craziness

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:

1. 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?
2. 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.
3. 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 (Money magazine article), 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.

What do you think?