Gifts for McCaughey seven could be jackpot with hitch Under some circumstances, IRS may look at donations as taxable income to family



A free house with new appliances and furnished nursery, a van, a "lifetime" supply of diapers, free cable television for seven years, $100 worth of groceries a week for a year -- to many struggling low- and middle-income families, it may seem as if the McCaughey family in Iowa hit a lottery jackpot as offers of donations poured in after the birth of their septuplets.

In one sense, the flood of donated goods and services could be better than the fruits of lucky gambling: Unlike the treatment of TC jackpot, many accountants say, the gifts are not likely to be taxable to the McCaugheys as long as they arrive without quid pro quos of any kind, such as a commercial endorsement. A thank-you note might be appreciated, but even that cannot be demanded.

One possible hitch is that if corporations write off their donations as promotional expenses, the Internal Revenue Service might look closely at whether the gifts should be categorized as income to the McCaugheys.

However, that may be academic because, so far, companies like Procter & Gamble, which is giving diapers, and Chevrolet, which is donating the van, have said they do not plan to take deductions for their gifts.

Federal tax law requires that donors pay a tax on any gift to an individual worth more than $10,000.

Moreover, gifts of any amount are deductible only if given to a church or a charity that is exempt from federal tax, a restriction that has tripped up many kindly taxpayers who sent checks directly to beleaguered individuals they read about in the news. But as recipients of such gifts, the McCaugheys will not owe the government a dime.

Of course, they will be living with the burdens of raising seven children.

Even if public generosity continues to buoy the McCaugheys' fortunes in the long run, their finances are likely to become so complicated that free accounting services might be high on their wish list.

Theodore Reis, a spokesman for the IRS in Milwaukee, the field office that oversees Iowa, declined to speculate about the family's tax liabilities.

"You can't say what anyone's situation is without all the facts," he said.

So far, no prospective donor has sought an endorsement or even a public acknowledgment as a result of a gift.

Good thing, for if the IRS believes that the McCaugheys provide any benefit to corporate donors in return for goods or services, the family will owe taxes.

"Lots of questions could come up if their name or image is used," said Edward Z. Wallower 2nd, manager of tax training for H&R Block, the nation's largest tax preparer.

To be sure, big corporate donors do not need endorsements to benefit from the "feel good" atmosphere surrounding the septuplet births.

In addition to boltering employee morale, gifts to the McCaugheys save corporations the embarrassment of seeing competitors beat them to the punch.

Heads would surely have rolled in Chevrolet's marketing department, for example, if McCaughey, who works for a Chevy dealer, had been photographed driving the family in a van donated by Chrysler.

"This is very cheap publicity for such companies," said Melvin Eisenberg, a law professor at the University of California at Berkeley who recently wrote a treatise on corporate gift giving. "The McCaugheys could probably have auctioned the right to provide them with these things for 10 times what it cost."

Financial life for the McCaugheys will get much more complicated if the septuplets are marketed to tap such commercial realities, however discreetly.

Kenneth McCaughey, their father, has asked for the "gift" of privacy so that he and his wife, Bobbi, can raise the children in "a normal Christian household."

But the normal household does not receive what the Des Moines Register reported as offers of $20,000 up to "whatever it takes" to tell the family's story.

"Dateline," NBC's news magazine program, said the family was not paid for an interview broadcast on Tuesday night.

On Nov. 21, though, two days after the babies were born, McCaughey acknowledged that advisers were looking over offers by tabloids and television shows to pay for interviews and pictures. Any money received for such interviews would be treated as earned income subject to taxation.

A lot of money is likely to be needed because the average cost of raising a child to age 17 is $145,000, according to the federal government.

That estimate does not account for much of the free support the family is getting.

It also does not include expenses like the family's extraordinary medical bill, which could end up topping $1 million by some estimates.

It is not clear how much of that is covered by insurance, because the terms of the family's insurance policy are not public.

Pub Date: 11/30/97

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