Tax Law Behind the Headline
Where Gore’s Nobel Winnings Have Gone

By William R. Lalli, CPA, NYSSCPA Tax Policy Manager, and Colleen Lutolf

Many may have read about former U.S. Vice President Al Gore winning the 2007 Nobel Peace Prize; however, the tax planning and consequences behind the prize may prove to be just as interesting as global warming, polar ice cap shrinkage and climate changes along the coast.

Not unlike the Oscar nominee who, upon winning the golden statuette, whips out a prepared list of “little people” to thank, Gore proved he was prepared to win the Nobel Prize by having made intricate, sophisticated tax plans for the who-knew-how-likely event of a Stockholm win. As fate would have it, Gore’s film, An Inconvenient Truth, won an Oscar this year for “best documentary,” although the 2000 Democrat presidential nominee was not cited as a recipient for that award.

Had the $1.5 million Nobel Prize actually caught the former Tennessee U.S. senator by surprise, he and wife Tipper might have expected to pay income tax on the full amount to the federal government that once employed him. That figure represents twice Gore’s share, as he actually split the Nobel with co-recipient Intergovernmental Panel on Climate Change.

IRS Publication 525 clearly and specifically addresses the situation at hand:

“Pulitzer, Nobel, and similar prizes. If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income.”

But here is the interesting part of the tax law behind this headline. Gore apparently planned (well in advance) on winning the prize. He actively prepared to take advantage of section 74(b), which sets forth the following exceptions to the rule:

“Exception for certain prizes and awards transferred to charities. Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if—

“1. the recipient was selected without any action on his part to enter the contest or proceeding;

“2. the recipient is not required to render substantial future services as a condition to receiving the prize or award; and

“3. the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient.”

One may find it interesting that a Nobel nominee does not enter, throw his “hat in the ring” or otherwise take action to be eligible for the “Alfie.” Since 1901, the foundation for the prize established by Alfred Nobel has honored men and women from around the world for outstanding achievements in physics, chemistry, medicine, literature and for work in peace.

Gore’s official statement on the win: “My wife Tipper and I will donate 100 percent of the proceeds of the award to the Alliance for Climate Protection, a bipartisan non-profit organization that is devoted to changing public opinion in the U.S. and around the world about the urgency of solving the climate crisis.”

The Alliance, established by Gore in 2005, states its mission is to assist in the preparation of educational materials on climate change and global warming. The organization may appreciate its founder’s largess, since Gore’s $750,000 noblesse oblige amounts to an almost 225 percent increase over the $3,324 net asset balance it claimed in its tax return at the end of 2005.

Because the Alliance is a 501(c)(3) organization, the “green” private citizen met the other section 74(b) requirements, so all of the $750,000 may be excluded from his income.

To put it in perspective, Gore, whose net worth has recently been pegged by Fast Company magazine at around $100 million, would have to sell five of his personal speaking engagements (currently priced at $175,000 each) to earn as much as he did (or would have, had he kept the money) from the Nobel Prize. Unlike his prize winnings, though, that income is taxable.

Eugene H. Fleishman, a member of the NYSSCPA’s Estate Planning Committee and Trust and Estate Administration Committee, recently recalled an instance where he had to do some charity work for a client.

The client, a Montana resident, had apparently found herself to be the not-so-proud owner of a new Porsche she had won in a raffle, Fleishman said.

“She had bought a raffle ticket to support a charitable organization and she won the raffle,” he said. “This sounds very nice; however, she was living in the mountains of Montana. A Porsche is the last kind of car you want to have. She had no interest in owning this Porsche.”

When the client attempted to sell the sports car, she discovered that the charitable organization had deemed the car value to be higher than the value she could receive for the car if she were to sell it. And because the code deems whatever value the charity placed on the car as the value that the “winner” has to declare as income, Fleishman’s client may have started to feel she had been taken for a ride.

Fleishman didn’t find his answer in the code but in case studies.

“I did some research to find out that if she were to sell the car within a certain amount of time from winning it that she could use the selling price as income, rather than the value of contribution,” he said.

Selling it back to the dealer wasn’t an option because at the time, “there wasn’t a Porsche dealer in the whole state of Montana,” Fleishman said. “So we sold it in the secondary market. And what we used as the income was never questioned.”

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William R. Lalli, CPA,NYSSCPA Tax Policy Manager, can be reached at wlalli@nysscpa.org. Colleen Lutolf, Editor, can be reached at clutolf@nysscpa.org.