Question

QUESTION ONE: Income

Valerie is a famous amateur New Zealand shot putter (sportsperson). She has won the World Championship for her sport four times, and she has won two Olympic medals and three Commonwealth Games medals. Valerie has been shot putting since she was a child. She is now 30 years old. She spends at least three hours a day training during the week, as well as all weekend.

When Valerie left school she went to university and became an accountant. However, in the past three years she has only been able to work part-time (15 hours per week) as she has become more successful at her sport. She has managed to support herself through corporate sponsorship and prize money received (e.g. she received $50,000 for each Olympic medal).

Required:

Explain if:

(a)     Valerie’s sponsorship and prize money would constitute income under ordinary concepts.

(b)     Valerie’s sponsorship and prize money would constitute business income.

Answer 1

Answer

1. Valerie’s sponsorship and prize money would constitute income under ordinary concepts.

As per US Code 74”Prizes and Awards”, gross income includes amount received as prized and awards.

Sub rule (d) of US Code 74 provides the exception to the above general rule which says “Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games”

As per the above rule, assuming Valerie’s received the prize money from United States Olympic committee, the prize money received is exempt from tax. Therefore, the prize money will not constitute income.

There is no exemption provided to income in the nature of sponsorship money. The same shall be included in income.

2. Valerie’s sponsorship and prize money would constitute business income.

Since, Valerie is actively engaged in training and doing only part time work, all the sponsorship and prize money received will be considered as her business income.

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