Should golf rater rounds be considered taxable income?

[Mike_Young]

hmmmm...
should they receive a 1099?

http://jacksonville.com/sports/golf/2012-03-02/story/government-cracks-down-compensating-course-volunteers-free-golf

[Jason Topp]

Maybe, to the extent such rounds are discounted, but then you would also need to deduct the associated expenses.  I doubt any rater turns a profit.

[Mike_Young]

Maybe, to the extent such rounds are discounted, but then you would also need to deduct the associated expenses.  I doubt any rater turns a profit.

The golf course or the magazine should send a 1099 and the rater would be responsible for justifying expenses.  It's no different than bartering for advertising...

[Mac Plumart]

 

[Michael George]

If it is an employer-employee or contractor arrangement, there is an argument to classify the benefit as taxable income.  So for raters, the question would be whether the magazine that "engages" that rater is providing for the "comped golf".  This determination would be between the golf magazine and the rater.

If there is no relationship, there is an argument to classify the benefit as a gift.  With the annual exclusion, no gift tax would be due as no round of golf is worth $13,000 - even for a fool like me that has paid way too much for rounds.

Either way, it is foolish for the government to go after "small perks" like this for employer-employee and contractor relationships.  When companies bring employees to sporting events, are those employees supposed to report that as income? 

Just very foolish thinking and proves that our system is broke.

[Mike_Young]

Well if we are to abide by the old saying " an opinion is worth what you pay for it" then it would actually add value to the ratings panels

[Adam Clayman]

I sure could use the tax cut. Great Idea Mike. We could then tally up all the expenses to obtain that potential income.

Joe Peschi put it best, on a TV interview when he said words to the effect that he could drop 50k/yr. on a psychiatrist or pay his dues at his golf clubs and not need a psychiatrist. One is a write off and one isn't.

If golf had a better PAC they'd act like an industry, versus just announcing to the world they are one.

[Mike_Young]

If golf had a better PAC they'd act like an industry, versus just announcing to the world they are one.

Adam,
That might be the most profound statement ever on this website...   so true....

[C. Squier]

Mike, if you're so anti-ratings, why do you quote them on your business website?

[Kyle Harris]

What is next taxing sports writers for ticket costs?
Should tour players have to pay to play Augusta?  What is the fair market value?

Both are compensated with taxable income for their work.

[Kyle Harris]

Mike, if you're so anti-ratings, why do you quote them on your business website?

Why is discussing a tax on a comped golf rater round "anti-ratings?"

[Andy Troeger]

This would place almost as much burden on the golf courses that offer any kind of discount as it would on the raters themselves. The courses would have to provide the determination of how much "income" the rater is receiving from their discount and most likely track and have forms available for verification--I guess the good news for the anti-rater crowd is that a lot more courses would stop offering the benefit! The courses are the only ones that have any idea of how much "benefit" the rater receives from a free round.

From what I know of the tax system, if these "benefits" were to be considered income then the expenses would be miscellaneous itemized deductions since rating golf courses would be seen as a hobby and not a business for most of us. There's a floor on those deductions (2% of AGI I think), so not all of the expenses would be deducted. For anyone that doesn't already itemize, they probably would pay some tax, although the amount would probably be fairly minimal. It would be an inordinate amount of work for a fairly small amount of additional tax dollars. And of courses this wouldn't just apply to raters, but golf professionals, architects, superintendents, and anyone else who ever gets comped/discounted for rounds of golf for any reason.

[Mike Sweeney]

Mike, if you're so anti-ratings, why do you quote them on your business website?

If you follow Mike's patterns on here, he is an interesting niche player. He was yelling about problems in the industry back when there were "no problems in the industry."

He has now adjusted his model to:

Owner, manager, overseas architect.

I like niche guys who go against the grain and I personally found this thread interesting. I think Clayman is correct, if the IRS went after raters for taxable income, it may actually work out well for the raters as they could then expense their travel expenses. For guys in the industry, they may already be these putting these travel expenses through as business, but I think even my wife would go for the rater card if I could write it off!

[Steve_ Shaffer]

I'm not a tax attorney or CPA but I think there   is a difference between a ranger or manager, an employee of a club, and a rater, a "preferred guest,"  for tax puposes. A ranger gets a fringe benefit that can considered taxable income while a rater gets a gift that is not taxable income.

What about the PUD(personal use discount) that is common in the golf industry?

[Kirk Moon]

The reason the free rounds in this case are considered taxable income is because the people involved agreed to accept the rounds in lieu of cash compensation.  Payment in kind doesn't exempt the recipient from incurring a tax liability on the income.

Raters have no employer/employee or contractor relationship to the golf facility they are rating so I can't see a reason for the golf facility to generate a 1099 for each rater game.

The real question is whether the publisher of the ratings has an employer/employee or contractor relationship to the rater and if they are offering free golf as compensation to the rater in lieu of cash compensation.  If so, it seems plausible that the value of the free golf provided to the rater could be considered as payment in kind (and therefore taxable income) to the rater from the publisher of the ratings. 

The tricky part of this would be defining the value of free golf provided to the rater.  The cost to the publisher is close to zero since the courses being rated typically offer free rounds to the publisher's raters as a marketing exercise.  I suppose the golf courses themselves could declare a nominal value for a round played that would apply for all comped rounds that could then be written off by them as a marketing expense.  The publisher would then have a value figure that they would pass on to the rater as payment in kind for tax purposes. 

But there are other factors at play as well.  How does one put a value on playing a round at Shinnecock Hills or NGLA or Cypress Point or (fill in the blank inaccessible to mere mortals fantastic private golf course)?  I imagine many of us would say "priceless".  Plus the time and effort spent by the rater in thinking about the ratings and filling out the ratings forms has intrinsic value in and of itself that must be factored in as part of the value equation.

Tough one.

The bottom line is that the value received by the rater for providing their services to the publisher is substantial.  Substantial enough that people are clambering to do it with zero cash compensation.  And the publisher isn't paying much for the services received from their raters.  Seems that services are being provided by raters and compensation is being given (in kind) to those raters but no income tax liability is being generated.  Seems like a dubious situation to me. 

[Mike_Young]

Clint,
I'm not anti-ratings...I'm like Sweeney says...I'm just stirring sh*t and getting discussion. 

But read the article on free rounds for rangers.  You can tell some things are getting ready to be questioned.
From what a CPA tells me the initial problems come form the Point of Sale systems in many courses.  They tabulate the rounds and at some course there was a question as to the line item "comp rounds".  Most courses weigh themselves on total rounds and comps are usually in this total.  I think someone employed in the golf business can be comped with no problem but I am receiving value for comping a rater supposedly.  Otherwise it would not be done.  I think it will go back to the mags as Kirk suggest but I do think we will hear more about this stuff.

[DMoriarty]

Are courses already writing off these comped rounds to "marketing" expenses? 

[Bill_McBride]

Clint,
I'm not anti-ratings...I'm like Sweeney says...I'm just stirring sh*t and getting discussion. 

How bad IS the weather today?

[Mike_Young]

Clint,
I'm not anti-ratings...I'm like Sweeney says...I'm just stirring sh*t and getting discussion. 

How bad IS the weather today?

Bill,
The sun has now come out....might have to take a break form this stirring crap...

[Mike_Young]

Are courses already writing off these comped rounds to "marketing" expenses? 

David,
I don't know.  Good question.  Would it be best if they did or did not?

[Andy Troeger]

Kirk,
The interesting part is that the "value" generated by the entire exercise is really three-way. The rater generates benefit for the publisher, the course generates benefit for the rater, and the publisher generates benefit for the course (assuming they like their rating I guess). The publisher can't create value for the rater without the course, unless the system changes dramatically.

My thought from the raters perspective would be that if we are getting "compensated" by the magazine through the value of free rounds, that it would have to then be considered a business relationship where the rater would be able to deduct their expenses and we're back to the beginning where the expenses will wipe out the income anyway.


Overall, I think there's a big difference between the rater issue and the article where employees are being compensated with free golf instead of money. Two-way relationship versus three.

[Mike_Young]

The course is allowing the rater to play because of his association with the magazine.  Just like letting the tire store owner play in exchange for tires or the bar owner play in exchange for beer.  I think the course would have to account for it  as David M mentions above.  "marketing expense".  PR to be more precise....
If a course owner lets a friend play and expects no benefit then comp should not be an issue....

[Kirk Moon]

Kirk,
The interesting part is that the "value" generated by the entire exercise is really three-way. The rater generates benefit for the publisher, the course generates benefit for the rater, and the publisher generates benefit for the course (assuming they like their rating I guess). The publisher can't create value for the rater without the course, unless the system changes dramatically.

It is true that the course generates benefit for the rater, but the course is only doing this because the rater is working for the publisher.  The course doesn't want a positive rating from "John Q. Smith".  They want a positive rating from Golf Digest (etc.)  Whatever value the rater brings to the situation is derived from their standing as a representative of the publisher.  So the benefit that the rater receives is, in fact, a benefit provided by the facility to the publisher, not the rater.

My thought from the raters perspective would be that if we are getting "compensated" by the magazine through the value of free rounds, that it would have to then be considered a business relationship where the rater would be able to deduct their expenses and we're back to the beginning where the expenses will wipe out the income anyway.

Yes.  The rater would presumably be treated from a tax perspective like an independent contractor and both the publisher and the rater would handle their tax filings accordingly.  

Whether that would turn out to be a wash from a tax perpective for the rater would depend on the particulars of the situation.  I can imagine that the IRS would look carefully at a tax filing from an independent contractor that netted out to zero taxable income year after year.  Why would an individual continue doing the work?  The only logical explanation would be that the value derived from the relationship exceeded the cash value assigned to it by the publisher.

Overall, I think there's a big difference between the rater issue and the article where employees are being compensated with free golf instead of money. Two-way relationship versus three.

Maybe not, per above comments.

[Mike_Young]

Yawn.

The rater isn't "working" for the publisher. It's voluntary.

The ranger isn't working for the course.  It's voluntary.

[Greg Tallman]

Yawn.

The rater isn't "working" for the publisher. It's voluntary.

The ranger isn't working for the course.  It's voluntary.

The IRS does not care... they are trying to find every penny, deserved or not, and that approach can only be quelled in November. It is all a bit ridiculous. Our method in Florida was to pay min wage and then charge the volunteers the exact net for their golfing privileges allowing the government to hit the minimal amount twice with their taxes.