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June 3, 2005 12:52 PM
Broken: American Airlines "Why You Fly" contest
Jack McCall writes up his bad customer experience as a winner of American Airlines' "Why You Fly" contest:
On American’s Web site, a ticket to Chicago costs approximately $200 including airport taxes. Yet, if I were to use one of these vouchers to fly to Chicago, I would be required to pay income tax on $2200. This could amount to approximately $1000 out of my pocket in taxes for a ticket worth $200.
Kinda sucks to be them! Couldn't you sell some of the vouchers in order to pay the taxes?
But seriously, what's broken here is airlines and the government, and we all know that's nothing new.
And, never enter anything unless you know what exactly you're going to win. (or lose, in this case)
Wow....just wow. I remember hearing about how Oprah gave away all those cars and that some people couldn't afford the taxes and fees to be able to accept them. What a gift!
And Bob.... Out of the 10-12 people that post on each topic, you made #1. Fantastic for you, I'm sure your life is complete.
Not my area of expertise, but I'd consult a different accountant.
No doubt that you have to report the value of the flights you actually take, but there's no reason you can't at least make the claim that the flights you don't take are worthless. Also, I think the absurd result of having to pay $2000 worth of taxes for a $200 fligh isn't quite right either.
I wouldn't pay it and I'd let them audit me. Obviously American wants to claim this is worth the maximum amount because that's what they are basing their deduction on. If anything is broken, it's their willingness to screw the customer.
This is really a sad story! If he can't get any relief from AA, then one possiblity is to take an expensive AA flight to someplace that he wants to go. Someplace far away with several connections. Then it might seem worth paying the taxes on it.
Only tangentially related (the mention of the car giveaway on Oprah made me do it): I've heard the tax liability on shows like "Overhaulin'" and "Pimp My Ride" can be considerable. Those cars get tens of thousands of dollars in upgrades.
This guy got something for free. Why are we sorry for him? If he doesn't want it, don't take it. He's no better or worse off than before he entered the contest.
I disagree, flyBuddy. He put some time and effort into the contest, under the assumption that he had some positive expectation (even if small). Having a contest, even a 'free' one, with only negative value prizes is definitely a broken customer experience.
It would be trivial for all such contests to include some cash to pay the winner's taxes (and the tax on the cash, etc.) But the contests are not about awarding the winner(s), they're just advertising.
John B...I've always wanted them to do an update show on those "Pimp My Ride" teens. See how happy they are now that they have to pay out the ass for their insurance and taxes because their car has all that stuff.
As for winning things, I understand if you win cash or a car or things like that and have to pay taxes but having to pay that amount whether he uses them or not? That is seriously messed up. American Airlines called it winning...I call that majorly broken.
Regarding the Pimp My Ride people, at least 3 of the cars from the show have ended up on Ebay. One guy had the stones to set a reserve price of $18,600 for a 88 Acura Legend with 216,000 miles on it with a rebuilt engine (read NOT new) and it's big feature was a bowling ball washer in the trunk! A yoga instructor that had a Toyota Land Cruiser "pimped" with a waterfall between the seats and a flat screen that popped out of the floorboard for teaching yoga classes with was fetching 25k! Those have high value for their rarity and 4wd ability so that seems like a decent price. The taxes on these probably arent that high because it isnt a contest. Do you think those people on Extreme Makeover Home Edition are getting stuck with huge tax bills and end up losing the houses to a tax lein?
I agree with Tom and check out your options.
I used to prepare taxes for a living. All but 3 U.S. states require a license to perform said job, and as it is a dog eat dog world and as the job is commission based and people will only pay so much for an experience they equate as negative I no longer work in that industry. But since You won the prize you won the prize and if you gave your Social security # you will probably receive a 1099 next year. The $2200 cost is the fair market value and gets included in the entire financal picture like the single red sock in the washer of whites changes things just a little and depending on YOUR personal situation MIGHT not make much difference. Good Luck.
fluffy,
no they aren't sometimes they do but you have to read the official rules. They only have to make sure they give the prize away that's why a lot of the contests has second chance drawings in-case no one claims the prize initially.
However If a company would really make the customer a winner they should absorb the tax.
Couldn't anyone just cover the taxes? Like Oprah and AA don't have enough money. As was already mentioned, Home Makeover covers it, so why not these people? The only time they shouldn't cover it is a cash-only prize, and even then it would be nice if they chipped in the tax.
What are the going tax rates for prizes, anyway?
And Manni, yes. My life is now complete. I can die happy.
heywoodjablomee: No, the people on the Extreme Makeover Home Edition pay NO taxes because of how ABC sets up the transaction. They legally lease the home for the two week filming/construction period, and then they pay the taxes as they are leaseholder improvements, then when the lease expires, the (now renovated) home reverts to the owners tax-free.
My understanding is that with the overpriced prizes that what you should do is report the value as 1099ed and then add a line adjusting it to reality.
However, with something of variable value like these airline tickets I don't know what the solution would be.
Re: Bob's comment. This one I am sure about. They can't "cover" your tax bill because that would be more income to the tax payer. So, if AA chose to cover the tax bill, it will end up being more taxes to the winner.
The constestants on those home make over shows are supposed to pay taxes on what they win.
But in this case there is no "win!" First prize costs more money in taxes than it will be worth to almost anyone.
If I ran a contest advertizing "valuable prizes" and each prize consisted of me making the winner responsible for one of my debts, I could land in jail for falsely advertizin that there were really prizes.
Reminds me of this famous contest:
First prize is a week's vacation in Philadelphia.
Second prize is two weeks' vacation in Philadelphia.
- Precision Blogger
Shhh... You folks are giving the tax people ideas.
Trust me, they have little goblins sitting in Baltimore basements, paid with your unused American Airlines prize tickets - for which by the way they can get partial refunds - to look for brilliant little new tricks the tax fairy uses to surprise the unimformed citizenry.
Folks, in Japan, where my prosteria happens to be plonked for the past twelve years, they tax you for advice given to you by a professional! Let's say company A's worker tells company B's worker during a morning commute to their respective offices not to invest in Gondwanaland, under Japanese tax law the advice is a taxable commercial service. Regardless of how the advice was given - solicited or unsoliceted the onus is on company B to know the tax code.
In my native Zimbabwe - a country that stripped me of my citizenship in 1988 and declared me a prohibited person (can't enter the country ever again)would you believe it but some silly twit in their tax department visited my sister in Zim. ten years after they booted me out, wanting her advice on how they could 'talk me into paying taxes to the country.' Yeah I know. My sentiments exactly. The only thing worse than taxes is we never get a chance to say to the government, "ahuh! You're broke, aren't you. And don't look at me like that, I ain't giving you no loan, you useless financial manager...
The problem with reporting less than the full amount, is the IRS will be matching to the 1099 amount--no match = audit!!
It sucks-yes-but its an across the board rule. On Fox's Renovate my family--they werent smart enough to get around the tax issues of the free reno's and the homeowners rec'd a HUGE 1099 for about $50+K. And if you saw the show you know those homeowners probably couldnt afford it.
I agree that AA is the one who is broken--but you can always not accept the prize and there fore not pay the taxes.
i think i would just take my ticket back to AA and give it back to them. if the refused i would cuss them profusly while sticking it up there sorry asses....!!!!!
but seriously take the tickets back to them and if that dont work donate them to a charity and get a tax break of the damn things your gona need that tax shelter for the screwing your gona get.
He keeps saying he was "shocked" at the value of the sweeps. It was clearly stated in the rules. I enter sweeps all the time, and yes, you have to be careful not to bite off more than you can chew, but the first caveat is, read the rules!
"Three (3) Grand Prizes: Round-trip Coach air transportation for two for twelve trips on American Airlines or their Airline Associates (American Eagle or AmericanConnection® carriers) from any city served by American Airlines or their Airline Associates in the 48 contiguous United States to any city served by American Airlines or their Airline Associates in the world. Grand Prizes will be awarded in the form of 12 vouchers for two valid for one year from date of issue. Approximate Retail Value of each Grand Prize (ARV): $52,800."
I have to agree with Pamela's comment.
From the "official rules" of this contest....
"Terms and Conditions Applicable to Prizes: Winner may not barter, sell or trade for transportation on a charter flight or any other alternate prize. Doing so will disqualify the winner, and another winner may be chosen. Winner and guests shall be subject to all policies and procedures of the Transportation Security Administration and all international travel requirements. Certain restrictions and blackout dates may apply, which may include requiring a Saturday night stay, all of which are subject to change in the sole discretion of Sponsor. Winner and winner's guests must travel together on the same itinerary, including the same departure date, destination and return date. No stopovers are permitted on tickets issued as a prize; if a stopover occurs, the prize will terminate at the stopover point and full fare will be charged for the remaining segments, including the return, of the trip. Use of travel vouchers may be subject to additional terms and conditions. Sponsor is not liable for any expenses incurred as a consequence of a flight cancellation or flight delay. Schedules subject to change without notice. All travel must be completed within one year of issue date indicated on voucher. If winner is unable to travel by date indicated, prize will be forfeited. All prizes will be awarded provided a sufficient number of eligible entries are received. Prize details and availability are subject to change, in which case, unless otherwise specified herein, a prize of equal or greater value will be substituted at Sponsor's sole discretion. Prizes are not transferable. No substitutions or cash redemptions except at the sole discretion of the Sponsor and as described above. Each winner is responsible for any applicable fees, service charges, surcharges, or passenger facility charges, and all insurance, federal, state and local taxes, if any, and any other unspecified expenses associated with acceptance or use of prize, including without limitation all meals, air and ground transportation, and gratuities. Prizes are provided "as is" and without any warranty of any kind."
Alway, always, always read the "rules" before entering a contest.
It's a shame they couldn't do like GM. My dad works there and they had a drawing where he won a brand new crew-cab truck AND they paid the taxes, including the taxes on the money to pay the taxes...in other words, except for the high insurance on such an expensive truck, they gave it to him FREE AND CLEAR.
So I guess carmakers are more considerate than airlines.
Pay the tax on the 'fair market value". If you can prove a ticket cost $200 for that particular day, that is what the IRS will charge you. It doesnt matter if the airline thinks its worth 2 million dollars, its only $200. Better yet you get a quote on a ticket discounter!
I agree with eco. Remember, these are vouchers, not actual tickets. They're not transferable, so they don't have any resale value. And until they're redeemed for tickets, they have no value to the winner, either. I'd only declare the actual equivalent costs of whatever trips I did take using them.
BTW, I also once won a free airline trip, and never did receive the 1099 they claimed they'd send.
America Airlines is struggling with the cost of fuel and trying to compete with the low cost carriers.
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First!
Posted by: Bob at June 3, 2005 02:08 PM