My husband is a huge Yankees fan. We’d follow the baseball season obsessively no matter what, but this year has been “special” because Derek Jeter is finally calling it quits and retiring, at the age of 40, as the Captain of the team. We’ve had fun watching the commercials saluting him, and enjoyed watching different teams present him with personalized and sometimes funny gifts.
The value of these gifts is in the tens of thousands of dollars. He’s received everything from high-end cowboy boots to cupcakes to a bronze bat to a paddleboard to a seat from a stadium to a portion of a scoreboard, the farewell tour has included a lot of interesting and unique gifts.
However, while the IRS generally allows that gifts are tax-free, the items that Jeter has been receiving might not be considered “real” gifts. In fact, Jeter might even have to pay taxes on the items, since they might be considered income (although he has a big enough salary that the tax bill would be little more than chump change to him).
Gift or Marketing Ploy?
One of the issues is that the gifts to Jeter might not be seen as true gifts, such as those exchanged between family and friends. Instead, the IRS might view these gifts as marketing expenses. Something similar happened a few years ago when Pontiac gave everyone in Oprah’s audience one day a new car. Since Pontiac wasn’t giving the gift in order to be generous, and the stunt was more in the nature of marketing to raise awareness, the IRS decided that the recipients had received a windfall.
Many of the middle-class moms in Oprah’s audience couldn’t afford a “gift” like that that could bring their household incomes up another tax bracket. It’s important to note that these types of items are considered income to the recipients; even though Jeter didn’t receive cash, he still might have to report it as income — and pay taxes in cash. And, in Jeter’s case, the argument can be made that these teams are trying to raise their profiles by presenting Jeter with these gifts. They aren’t doing it as a spontaneous gesture. It’s a calculated move to generate buzz about what was given.
The only way to avoid taxes when you receive a marketing ploy masquerading as a gift is to decline the gift. In the case of receiving a car for being in a studio audience, you might be able to decline it because you don’t want to pay the taxes on the value of the car. If you’re in a prominent position, like Jeter is, declining might not be a real option. After all, it’s rude for the Yankee Captain to refuse these expensive and personal gifts. Better to accept them and just pay the taxes.
It’s a sticky situation, but the assumption should almost always be that you should consider that the IRS will likely want a cut. Double-check with a tax professional to brush up on gift tax rules, and verify that what you have received is truly a gift. Then plan for the disappointment associated with paying taxes on the gift you received.