"And Then The IRS Asked For Their Cut, And The Screaming Stopped..."

By Chuck Sudo in News on Nov 22, 2010 5:20PM

Friday, in the comments to our post on Oprah's "Ultimate Favorite Things" giveaway, reader "Chicago D" asked about the tax burden that would have to be assumed by Winfrey's army of formerly couch bound housewives who received the swag.

It's a fair question. Remember when Winfrey gave away Pontiac G-Six sedans to her studio audience six years ago? The model she gave away was valued at the time at $28,500. Pontiac came through and paid for applicable fees such as state sales tax and licensing, but the individual winners of the cars still had to claim the Pontiacs as earned income. Depending on the tax bracket, that meant someone in the audience who just had a car given to them by Oprah Winfrey may have had to pay as much as $7,000 in taxes.

The combined costs of everything that Time Out Chicago's Mark Beiganski was able to price on the giveaway list came to $9759. Conspicuously absent was the cost of the Allure of the Seas Royal Caribbean cruise. We searched the Royal Caribbean website for pricing of a 7-day Allure of the Seas cruise. Since money is no object and comfort is at a premium for Winfrey, we decided to add to the total the $1999 for a deluxe suite on the ship. That takes the total to $11,758. Add another $1019 for a five-year Netflix membership (based on an annual rate of $203 per year) and, let's say, another $1500 for the rest, the grand total for Oprah's Ultimate Favorite Things is $14,277.

If this is considered earned income and one of Oprah's lucky winners is in the 25% tax bracket (an earned income of between $34,000 and $82,400 a year), that audience member has to come up with $3569.25. That's a steep price for a gift haul that includes a $75 Kyocera ceramic knife you can buy at Target.

When news broke in 2004 that the audience that received the cars would have to pay the taxes on them, Harpo Productions made a rare misstep and said their options were to keep the car and pay the taxes, sell the car and keep the taxes or forfeit the car. Winfrey has been cognizant of that negative PR so far in her farewell season. She's already said she would pay the taxes of each the audience members on that trip to Australia she gave away in her season opener.

We've heard from a Harpo source who wished to remain anonymous that Winfrey would cover the tax hit on the "Favorite Things" giveaway. And she could: the brands Winfrey included in her show of largesse are likely donating the giveaways as part of a sponsorship agreement. They get a tax write-off, Oprah gets to reaffirm her reputation for generosity, and a Pavlovian audience of people who were gifted with contradicting items like Ghiradelli brownie mix and a weight loss plan may get stuck with a tax bill.

The screams they may emanate could be far different from how they shrieked in Winfrey's studio Friday.