Commentary: Celebrities can't Trump tax laws

Nowadays you can't count on much, but you can count on this: About once ever other week, some celebrity is getting married, usually in a highly public way. These weddings, often staged on a cliff-top overlooking the ocean, or in a romantic chapel in the woods, are high-end press events. They help solidify a celebrity's persona in the public mind, and they affirm that this person has arrived (perhaps for the second or third time) - in style.

A celebrity wedding also costs a lot of money. As accountants, we look at this allegedly sacred ceremony as a tax event: Who pays for what? And are the inevitable perks subject to our nation's tax laws?

These questions bring to mind one celebrity in particular: Donald Trump - a master marketer famous for working every possible angle.

Last Jan. 22, Trump married his longtime girlfriend Melania Knauss. One of the stories that developed from the wedding was the considerable dividends the couple enjoyed from their nuptials. For example, Graff, a diamond seller, gained national attention for creating a 15-carat, $1.5 million engagement ring for Melania. It was reported that Trump paid about half that amount for the ring. With an exclusive contract with Getty Images to market pictures of the event, it was estimated that Trump, the author of The Art of the Deal, may have made a profit on his lavish wedding.

As celebrities receive these perks in return for good publicity for vendors, it's logical to consider the tax burden. In the landmark case, Commissioner of Internal Revenue v. Duberstein et Ux. (363 U.S. 278; 80 S. Ct. 1190; 4 L. Ed. 2d 1218; 1960 U.S.), the U.S. Supreme Court determined the intent of the provider determines whether a perk is taxable.

If the provider is motivated by love, affection, kindness, sympathy, generosity, admiration, or similar emotions, the perk is treated as non-taxable. But if the provider is motivated by financial gain, then the perk is taxable.

In Trump's case, Graff noted that they offered Donald a significant discount because he's a good client of ours.

The designer of Melania's dress noted that the publicity generated when celebrities agree to wear their gowns is payment enough. A designer receiving publicity probably would be seen as being motivated by financial gain. Providing a significant discount because a person is a good client does not provide enough information to determine whether the perk is taxable. The court noted that the entire set of circumstances must be examined to determine whether a transaction is taxable.

So, does this issue impact non-celebrity taxpayers? The answer is yes. In Duberstein, the taxpayer provided names of potential customers, expected nothing but a continued friendship in return, and received an automobile for being such a good friend through the years. The Supreme Court ruled that the automobile was taxable income because the nature of their past relationship indicated that the automobile was compensation for customer leads.

What can we learn from these situations?

First, gifts between individuals who also engage in business with each other must often be treated as taxable. It will be difficult to prove that the substance of the transaction was not for business purposes.

Second, certified public accountants must look at things a little differently. Most people saw Trump's wedding as a somewhat silly social event. CPAs look at it as a taxable event - and an important one at that.

Phillip J. Korb and Thomas E. Vermeer, associate professors of accounting at the University of Baltimore, wrote this column for The Daily Record. The opinions expressed are their own and not necessarily those of this newspaper.

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