Don't Mess With Taxes

Here's some news guaranteed to get steam coming out of many ears on Capitol Hill.

Internal Revenue Service Commissioner John Koskinen last week was awarded the Elliot L. Richardson Prize for Excellence in Public Service by the National Academy of Public Administration.

IRS Commissioner John Koskinen is often called to testify at Congressional committee hearing about his agency's actions. Last week, however, he appeared before a more welcoming group.

The award, named for a four-time White House Cabinet member who served in all three branches of government under six presidents, includes a $25,000 cash component, at least half of which is earmarked to a charity chosen by the recipient.

Direct donation tax diversion: The award going to the IRS head honcho makes it the perfect time for a quick tax liability note.

Any of the $25 grand that Koskinen actually accepts will be taxable income to him. His own agency says so in a section of IRS Publication 525 addressing Pulitzer, Nobel and similar prizes:

If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income.

But, and there's generally a "but" when you're talking taxes, the Pub. 525's discussion on taxable and nontaxable income (also one of last week's Daily Tax Tips) says you don't have to include this prize in your income if you meet all of the following requirements:

1. You were selected without any action on your part to enter the contest or proceeding.
2. You are not required to perform substantial future services as a condition for receiving the prize or award.
3. The prize or award is transferred by the payer directly to a governmental unit or tax-exempt charitable organization as designated by you.

So, as I'm sure Koskinen knows, the portion of his Richardson Award that goes directly to the commish's favorite IRS-approved nonprofit will not be included on his 2016 filing.

And that earns the award amount an honor of its own: selection as this week's By the Numbers figure.

No deduction for direct donations: Making a charitable gift via a direct transfer to the qualified organization typically is the route taken by high-profile public figures when they win honors that include an honorarium.

That was the case with the Nobel Prizes that President Barack Obama (2009 Peace Prize with an accompanying $1.4 million accompanying cash prize) and former Vice President Al Gore (2007 Peace Prize plus $1.8 million) won.

And while it's a great tax strategy to keep a prize winner's taxable income down, there is one notable downside. Such direct donations don't provide the prize winner any tax deduction for the charitable donation since they never took possession of the transferred funds.

But that's a trade-off worth taking to keep your tax bill low.

I wanted to make sure you knew about this option before you are lauded -- and well compensated -- for your notable service and/or deeds.

Reaction to IRS winner: Koskinen was one of two Richardson Prize winners this year. William Ruckelshaus, the first dministrator of the Environmental Protection Agency, also was honored at the March 1 ceremony at the Ronald Reagan Building in Washington, D.C.

"John Koskinen and William Ruckelshaus have had long and distinguished careers in the public sector, and have had a significant impact on the ability of the federal government to function effectively for our citizens,” said Michael C. Rogers, chair of the Richardson Prize Fund, in making the presentations. "They are both strong role models for future generations of government leaders."

Some members of Congress disagree.

In July 2015, House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-Utah) and 20 of his panel colleagues wrote President Obama asking him to fire Koskinen. When that didn't happen, Chaffetz three months later introduced articles of impeachment against Koskinen.

"If obstructing a congressional investigation and misleading Congress merits an award, then it seems like they have the right guy. I guess I define excellent public service differently," Chaffetz said via email in response to a Government Executive magazine request for comment on Koskinen's award.

In accepting the award, Koskinen said that he is concentrating on "where we're taking the organization, and what should the taxpayer experience be three to five years out."

And while his co-award winner Ruckelshaus returned to the EPA for a second term under the Ronald Reagan administration, Koskinen jokingly announced during the award ceremony that when his current posting is up, he will not be coming back for a second run at the IRS.

Now that, at least, will make his Congressional opponents happy.

You also might find these items of interest:

• Would a cuddly mascot make the IRS more lovable?
• Broken tax promise earns Bush 41 the JFK courage award
• 7 former IRS commissioners chastise Congress for slashing the tax agency's budget