The Taxation of Prizes and Awards—Tax Policy Winners and Losers

This article evaluates whether the recent emasculation of the exclusion for bona fide public achievement prizes or awards was justified. In order to accomplish the task, the article will begin by setting forth the applicable statutory provisions and tracing their historical development. Second, the policy implications of new section 74(b) will be analyzed in depth. Next, the article will offer an alternative that would effectively deal with the problem of compensatory employer to employee awards, while retaining the long standing policy of using tax incentives to encourage humanitarian or public contribution.

The article concludes by arguing that Congress' shift to a tax policy that measures the welfare of society by economic productivity and not with reference to humanitarian and public values, such as charity, religion, science, education or cultural achievement, is short-sighted and mistaken.