Will U.S. Be First to Tax Nobel Prize?

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Will U.S. be first to tax Nobel Prize?

To journalists it's known as the "Pulitzer Prize rule,' to scientists it's the "Nobel Prize rule.' It's a provision in the U.S. tax code that excludes from taxable income certain cash awards recognizing achievement in fields such as charity, the arts and science. But a little-noted provision of the proposed tax reform legislation now wending its way through Congress would drop that exclusion and tax as income all money from prizes and awards other than scholarships or academic fellowship grants.

U.S. tax law already treats most monetary prizes and awards as income. However, winnings are not taxed when the award is for special achievements, was not applied for by the recipient and will not require that the winner "render substantial services as a condition of receiving it.' Among awards that fall into this special exemption category are the Nobel Prize, the Pulitzer Prize, the MacArthur Foundation Fellowship Award, the Lasker Award and the General Motors' Kettering, Mott and Sloan cancer-research prizes.

The proposed elimination of exemptions for certain awards has already brought sharp criticism from the Stockholm-based Nobel Foundation. "The tax reform bill would make the United States the first and only country in the world to tax Nobel Prizes,' notes Nancy Abramowitz of Arnold & Porter in Washington, D.C., a firm representing the Nobel Foundation in the United States. A statement by her firm, outlining the Nobel Foundation's position, charges that the proposed tax change could set a disturbing precedent: "U.S. taxation of Nobel Prizes could be used as an excuse by certain foreign governments to tax away the prizes, or otherwise punish dissident laureates.'

Says John Corbally, president of the John D. and Catherine T. MacArthur Foundation in Chicago, "Everybody is going to have to do something if we're going to get hold of the deficit. But in general, this would seem to me to be such a small source of funds . . . that I'm not sure it's among the important things that need to be done.'

In fact, the intent of the tax reform package is for it to be "revenue neutral'-- that is, to bring in only as much money as before, according to Betty Scott Boom, a staff member of the Senate Finance Committee. …