Los Angeles Tax Attorney: Last week’s firestorm regarding Sarah Palin’s wardrobe expenses generated several calls regarding tax implications or tax problems for Governor Palin stemming from her $150,000.00 clothing shopping spree.
Politics aside (Democrats position: $150,000 for clothes…she’s no Josephine Six Pack, Republicans Position: Remember John Edwards $400 hair cut), from an IRS tax perspective, it may be a non issue. (United States Tax Court US TAX COURT holds the jurisdiction to resolve any tax problems that may arise out of Palin’s tax situation.)
Uniforms provided by employers for business use are not taxable to the employee. I’m not sure if Sarah Palin is “employed” by the Republican Party because she is still the governor of Alaska. It may be possible that she is employed by both entities. Regardless, Palin’s clothing from Neiman Marcus and Saks 5th Avenue probably would not constitute “uniform” as defined by the IRS TAX CODE Although if RNC argued that all female members of the party must wear certain type of Valentino or Armani in red or black while on stage to campaign, it may have a plausible counter argument if such clothing items were not usable for ordinary wear.
Some of my colleagues believe that she would need to declare fair rental value of the clothes she used on her income tax return but certainly not the full $150,000 RNC spent on her clothes. However, what would be the rental value for these clothes? Difference between cost less resale value?
I think the fair rental value or fair use valuation would be the correct tax position in most ordinary circumstances. However, RNC or Palin’s tax attorney could probably argue that she would not need to declare any rental value for these clothes.
Most used clothing items have very little resale value. However, assuming that Governor Palin never owned these clothes, RNC could auction off Palin’s clothes which would probably generate revenues in excess of 10 to 20 times the cost basis for these clothing. (Campaign Fund Raising Issues?) In essence, the argument would be that Palin didn’t rent these clothes, she provided service and added value by having worn these items. This issue would be determined by the United States Tax Court US TAX COURT.
Further, what is the difference between expensive clothing provided to news anchors or stand-up comedians like Jay Leno by their respective stations and the situation here? They are all celebrities looking good for their jobs…right? Leno or Katie Couric don’t pay taxes for the different wardrobes which they wear every night. Regardless, Wardrobegate’s political damage may be significant but the IRS tax impact to Palin should be nominal.