TaxProf Weblog op-ed:  MTV The Problem – Did Tori and Devin Simply “Win” a Big Tax Downside?, by Donald Tobin (Maryland; Google Scholar):

Spoiler Alert: for those who haven’t completed watching the season, don’t learn this.

There may be virtually nothing higher in life than watching trash TV with one’s daughter. As a tax professor and former dean, my tax colleagues could also be dissatisfied to be taught that, sure, I watch MTV’s The Problem. I typically scale back stress by watching “trash TV” and my favourite TV exercise is watching MTV’s realty present, The Problem, with my daughter. A significant drawback, nonetheless, is that as a tax professor I see tax issues in all places, and the ultimate episode of the problem gives an exquisite alternative to debate the project of revenue doctrine and the fruit and tree metaphor from Lucas v. Earl, 281 U.S. 111 (1930), and Helvering v. Horst, 311 U.S. 112 (1940). A lot for a soothing night watching TV with my daughter.

In case you don’t watch The Problem, which I assume is most individuals studying Tax Prof, it’s a realty TV present the place contestants interact in tough challenges to turn out to be “Problem Champions.” On this season’s episodes, folks had been paired up with their “experience or die” to compete for $1,000,000. On this season, the successful group took residence all the cash. In previous seasons, typically the winners had been tasked with deciding how a lot of the prize cash ought to go to different finalists, and in a single notably evil season, “Jonny Bananas” took the entire cash, even reducing out his hard-working associate. (I nonetheless haven’t forgiven him). In that very same season, Devin gained third place and break up his cash together with his associate. Devin made a touch upon that season that he all the time promised himself that cash wouldn’t cease him from doing the precise factor. Go Devin!

This yr the good-hearted and efficient group Tori and Devin gained the season. This was particularly gratifying for my family as a result of each Tori and Devin have matured over the gazillion seasons they’ve come shut, however by no means gained, The Problem. This yr Tori delt overtly about her in search of remedy to take care of main psychological well being issues, encouraging tens of millions to get psychological well being assist. In reality, it was clear that Tori’s coping with tough psychological well being points allowed her to win the season.

However that is Tax Prof. How is all this related to a primary revenue tax class? After successful the $1,000,000, Tori and Devin introduced that they had been “giving” $38,000 of the proceeds to all the opposite finalists, six in complete. Devin even referenced that indisputable fact that he was like Oprah, “you get $38,000, and also you get $38,000.” And all I may suppose was, oh boy (OK perhaps I used totally different phrases), do Devin and Tori must pay tax on the $228,000 they only gave to the opposite contestants? It could actually’t be! Tori and Devin had been simply making an attempt to be good – and very nice at that. They’d no necessities to provide the cash away, and it wasn’t even a part of the present (because it had been in prior years). And so they even gave cash to Jonny Bananas (who keep in mind gave no cash to his personal associate when he had the possibility).

Underneath the project of revenue doctrine, Tori and Devin had full management of the cash with absolute proper to it. They can not assign that revenue to another person and keep away from paying tax on it. Tori and Devin thus acquired $500,000 every and must pay tax on that $500,000. They then gifted $36,000 to every of the opposite finalists. If that idea holds, Tori and Devin not solely gave every participant $36,000, but in addition took a tax hit for his or her generosity. In project of revenue parlance, Tori and Devin had been the “Tree,” and the gave away the “fruit.”

I’m not certain my daughter would ever watch The Problem with me once more if I insisted on this argument. Traditional project of revenue doctrine most likely would tax Tori and Devin on the total $1,000,000. However as I all the time inform my college students, details matter. I don’t know Tori’s and Devin’s explicit info, however they’re clearly entertainers who’re within the enterprise of entertaining. (The Problem even refers to individuals because the solid). It’s straightforward for them to argue that that is both a enterprise expense deductible below $162 (assuming they aren’t staff) from the money winnings (suppose Jenkins v. Commissioner —  Conway Twitty case) or that splitting funds is a part of the present and that they had been merely negotiating with the opposite gamers concerning how the funds ought to be break up, which was frequent on the present. (Although this was a really one-sided negotiation.) There was some profit to their doing this as a result of they’re repeat gamers on the present. Thus, one may argue that Tori and Devin didn’t actually have full management of the funds till the negotiations ended, they usually claimed the cash from the producers.

In any occasion, my take is Tori and Devin are okay, however they might need to rent a tax lawyer. No less than I hope they’re OK. I don’t need to destroy my TV evening with my daughter.

https://taxprof.typepad.com/taxprof_blog/2023/03/tobin-mtv-the-challenge-did-tori-and-devin-just-win-a-huge-tax-problem.html