Like most New Englanders, we at BNN are still basking in the afterglow of the Patriots’ exciting and improbable Super Bowl victory over the Seahawks. As has been widely reported, Tom Brady was named the Super Bowl Most Valuable Player for orchestrating the two fourth quarter touchdown drives that left the Patriots up by 4 points with just over 2 minutes to play. As the award winner, he was presented a 2015 Chevrolet Colorado truck worth roughly $34,000. However, he has announced that he will transfer the truck to rookie cornerback Malcom Butler, whose phenomenal last-minute interception snatched victory from the jaws of defeat.
As a long-time tax practitioner, it’s almost in my DNA to wonder about the tax consequences of these actions. An article posted yesterday on the Forbes website paints a gloomy picture. In a nutshell, with very few exceptions, award winners must pay income tax on the value of the awards. In addition, Brady could possibly owe gift tax for his generous act in transferring the truck to Butler. The end result could be a 39.6 % federal income tax, plus state income tax, plus a 40% gift tax. In addition, moving beyond the scope of the article, there could even be sales tax implications. This could be Exhibit A for the axiom that “no good deed goes unpunished.”
Obviously, this is the tax equivalent of a 17 yard sack resulting in a lost fumble. Is there anything that Brady could do to scramble to safety here? We are not his tax advisors, but as a token of thanks for his great performance, here are a couple of ideas that we think would be worth exploring.
The best idea would likely be for Brady to refuse to accept the truck. However, for this to be effective, he would have to refrain from directing the truck to Butler.
- For gift tax purposes, Code Section 2512 contemplates that there must be a “transfer” of property by Brady, which arguably does not exist if Brady does not designate the recipient of the truck. He would need to tell Chevrolet something like this: “I do not want the truck, and it is completely up to you who should get it in my stead.” If he wants to take a slightly riskier position, he could add: “By the way, are you aware that Butler’s interception changed the likelihood of our victory from around 12% to more than 99%? But it’s completely up to you to decide who gets the truck.”
- On the income tax side, it seems like it might be a harder scramble. Code Section 74 indicates that amounts “received” as prizes and awards are subject to income tax. There is an exception for prizes and awards transferred to charity, but that’s not relevant here. But if Brady does not accept the truck, he might be able to argue that he never “received” it and therefore should not be taxed on it. To strengthen this position, he should not get behind the wheel of the truck, and the longer he waits to decline the truck, the harder it becomes to argue that he did not receive it.
Had Brady taken these steps during the post-game celebration, it would have been one of the most impressive audibles of his storied career.
Assuming that none of the above steps are taken, a silver lining is that Brady could ameliorate the gift tax consequences by splitting the gift with his wife Gisele Bundchen, assuming that she is either a United States citizen or a United States resident alien. Also, if Butler has a family, perhaps Brady could take the position that the gift is to multiple recipients. As long as the total amount given to any one individual does not exceed $28,000, and Tom splits the gifts with Gisele, the $14,000 annual gift tax exclusion will shelter the gift from tax.
One piece of good news for Brady is that it’s still early in 2015, and he has almost 11 months in which to take steps to reduce his taxable income for the year. However, I suspect that he is slightly less concerned with this than with trying to help the Patriots become the first repeat champions since they turned the trick in 2003-04.