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Post Date:  10/24/2016
Last Updated:  10/24/2016

Summary
Cross References
- Public Law 114-239
- IRC §74

On October 7, 2016, the President signed into law H.R. 5946-United States Appreciation for Olympians and Paralympians Act of 2016. In general, IRC section 74 states that gross income includes amounts received as prizes and awards. The new law provides an exception for the general rule. Effective for prizes and awards received after December 31, 2015, gross income does not include the value of any medal awarded, or any prize money received from the United States Olympic Committee on account of competition in the Olympic Games or Paralympic Games. This gross income exception does not apply if the taxpayer’s adjusted gross income exceeds $1 million ($500,000 for MFS) for the year of the prize.

The Committee on Ways and Means explained that while it works on comprehensive tax reform, this new exclusion was added to the code to eliminate an unfair tax burden. Prior to this law change, there were three exceptions to the general rule of inclusion of prizes and awards in gross income:
1) Qualified scholarship awards are excluded from gross income under IRC section 117,
2) Certain employee achievement awards are excluded from gross income under IRC section 74(c), and
3) Awards for religious, charitable, scientific, educational, artistic, literary, or civic achievement are excluded from gross income, provided that the recipient takes no action to be considered for the award, requests that the monetary award be transferred to a designated governmental unit or tax-exempt organization to which deductible charitable contributions are permitted, and is not required to render future substantial services as a condition of the award. [Reg. §1.74-1(b)]

Examples of awards that may qualify for the third exception above include the Nobel and Pulitzer prizes. In contrast, prizes or awards in recognition of athletic achievement are generally ineligible for the exception.

The United States Olympic Committee (USOC) serves as a coordinating body for United States participation in international competitive amateur sports, in order to provide the most competent amateur representation possible in each event in the Olympic, Paralympic and Pan-American Games. The USOC awards each U.S. Olympic athlete prize money for each medal won, in the amounts of $25,000 for each gold medal, $15,000 for each silver medal, and $10,000 for each bronze medal. U.S. Paralympic athletes receive $5,000, $3,500, and $2,500 respectively for each gold, silver, and bronze medal awarded. All U.S. Olympians and U.S. Paralympians are required to be U.S. citizens. As a result, prior to this law change, these performance awards (as well as the value of the medal itself) were includible in gross income as prizes and awards, regardless of whether the athletes derive the income for activities performed inside or outside the United States.

The Committee on Ways and Means said it believes that the athletes who represent the United States on the global stage at the Olympic and Paralympic games perform a valuable patriotic service. The athletes do so only after years of personal sacrifice to attain the level of excellence required to compete at the Olympic and Paralympic games. During their years of training and preparation, many athletes earn little or no money from participation in their chosen sports and often defer pursuit of careers outside sports. Monetary prizes awarded by the USOC are intended to reward such sacrifices and to provide incentives to other athletes who seek to represent the United States on a global stage. The Committee believes such prizes and medals awarded should be without tax consequences.

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