Survivor Winner Headed to Court for Tax Evasion

December 27, 2005

The winner of the first ever Survivor, Richard Hatch, has been charged with avoiding taxes on his $1 million winnings from the show and will face trial beginning next month. The latest in this case from the Miami Herald:

The man who won $1 million on the first Survivor show is facing a January trial date on tax evasion charges, reports The Associated Press.

U.S. District Judge Ernest Torres denied three motions filed by lawyers for Richard Hatch, the Newport man who sometimes competed naked on the CBS reality show.

According to a spokesman for the U.S. attorney’s office, Hatch’s lawyers had asked the judge to delay the trial and force federal prosecutors to divulge how much money Hatch supposedly owes the government.

Torres scheduled jury selection for Jan. 10. (Full Story)

The problem of paying taxes on winnings is common, as we saw with the famous case last year of Oprah fans who were forced to pay taxes when they received cars she gave away. Many have asked if shows can simply pay the taxes for the recipients instead. The answer is yes — but then recipients must also pay taxes on the “income received” from the show paying the taxes for them. At that point, shows could also pay those taxes, but then recipients must pay tax on that income, and so on.

The question is: Does the back-and-forth of tax liabilities ever stop (assuming tax law provisions don’t take effect such as the exemption for cash gifts up to $11,000)?

The answer is yes. This back-and-forth creates what mathematicians call a “convergent geometric series“, which means we can neatly summarize what shows like Survivor or Oprah would have to pay to cover all tax liabilities:

Total Paid by Show = Winner’s Take-home Amount / (1 – tax rate)

So if CBS had wanted to pay Richard Hatch $1 million (before taxes) and pay his taxes, they would’ve had to write a check for approximately $1.4 million, assuming a tax rate of 30 percent.

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