IRS POSITION: PRIZES AND AWARDS TO BE INCLUDED IN GROSS INCOME
HEADNOTE
References: Code Sec. 74(a), 61, Reg. § 1.74-1(a)(1), Gregory v. Helvering, 293 U.S. 465 (1935)
Gross income, by definition, means all income from whatever source derived which would
include amounts received as prizes or awards. Due to the substance over form doctrine, tax
planning strategies that structure a transaction in such a way to avoid a tax liability but fail to
address the overall intent of the transaction are not permissible under US Federal Law.
ISSUE
Are the home improvements and family vacation awarded to the winners of a network
television show includable in their gross income and taxable under the current internal revenue
code?
FACTS
A recent contestant’s CPA holds the position that the home improvements and family
vacation provided by the show’s producers are not includable in gross income. They arrived at
this conclusion by treating the use of the family’s home throughout the duration of the episode’s
filming as a rental agreement and the home improvements as being made under a leasehold
agreement.
They hold that under § 280A(g), due to the under 15 day rental period, the income
received in the form of home improvements and a family vacation are not required to be included
in gross income. Further, they hold that under § 109, their gross income should not include the
improvements made by the television producers, the lessee in this case, as they would be
considered leasehold improvements under the rental agreement. And lastly, under § 121, they
hold that the married couple falls within the threshold amount of $500,000 which would exclude
