Oprah's famous "You get a car! And you get a car! And everyone gets a car! " show landed each audience member who got a 'free' car with a $6000 tax bill.

https://www.history.com/this-day-in-history/oprah-gives-away...

Could they have offered to pay the tax? Or would that then trigger more tax, creating some kind of infinite loop of gifts and taxes?

Offering to pay the tax does trigger more tax; but as the added tax is less than what you add to the price, the total amount converges (as long as the tax rate is less than 100%). To have the recipient end up with a net payment N after taxes you've to pay N/(1-r), with r being the tax rate.

With a 25% tax rate and car value of $28,500; to make it a tax-free gift Oprah should've paid an additional $9,500.

Yeah, the term is "grossing up" and it's often done for bonuses and things. I've also seen it on sweepstakes. One for Fage yogurt offered a dream vacation to Greece and included a gross-up to pay the income tax.

Yes.

There’s a great YouTube view about exactly this by Stand Up Maths if you want to go down a rabbit hole.

https://youtube.com/watch?v=3cNdM7W0VlQ

To be fair, $6000 for a brand new car ain't so bad, even if it was a Pontiac.

The problem was that the people in the audience all needed cars and couldn't afford them. They didn't have money. Finding $6000 to keep a gift when you're broke is a hard problem.

IRS does offer payment plans at least for some types of tax debt. But really, if you need a car but are unable to get $6000 to obtain one, I'm not sure if you have that much better luck in the used car market, since a car would still require some thousands that you either need to have at hand, or get a loan to. If you can't get a loan for a $6000 new car, can you get a loan for a $3000 used car?

> I don't think it's a gift tax, but ordinary income tax.

Correct. Prize winnings are taxed at your ordinary income tax rate. The gift tax applies to gifts, not prize winnings, and even then, the giver pays it, if applicable.

In Australia, the thing called an "art union" used to be how to raise money for charity, and the prize was often a home, and they really exist, and people did win and live in them, and some of them were classics of the low spot of the 60s and 70s, shag-pile carpet, sunken entertainment pit, volcano-stone fireplace...

They still take place. I suspect the buildings have moved with the (architectural) times.

They certainly aren't as common as they used to be, but I still see them. I think maybe Royal Life Saving Society still do it? Gold Coast apartments are typical properties now. I'll never enter though - not since they sold my details and I got spam calls for years.

I think you mean the apogee of architectural refinement. I would love an entertainment pit.

https://www.imdb.com/title/tt5473090/ (swingin' safari: 2018) is a coming-of-age film set in Australia, which includes an exploding whale, Guy Pearce, Kylie Minogue, and a beautiful shag-pile den with sunken pit. It was shot on the GC.

In the US there is (was) some way of using the home raffle thing to bypass capital gains tax but I’m unclear on the details.

> I don't think it's a gift tax, but ordinary income tax.

Is it simply counted on top of (added to) your existing income, and therefore progressive?

If I'm unemployed, with no income at all, would I pay very little to no tax on such a gift? Or gifts are a special case with a separate rate?

Yes, the normal progressive tax brackets apply. So if Oprah gives you a car worth $40k, and you have no other income that year, you will take the standard deduction and pay 12% on what's left. Don't forget to pay your state income tax and also the DMV to title & register the car. Getting free stuff isn't cheap!