YOUR TAXES : PART FOUR: SPECIAL SITUATIONS : IRS to share honors with prize winners

For those select Americans honored each year with Nobels, Pulitzers or other prestigious awards, tax reform will scarcely be considered a prize.

Under the new law, money that goes with the honor of being named for outstanding achievements in science, journalism, literature and other fields will for the first time be taxed--unless the recipient donates the funds to charity.

"It's now fully taxable, with the rate depending on the recipient's bracket," said John Edie, general counsel to the Council on Foundations, a national association of philanthropies based in Washington.

To help compensate, some organizations are upping the ante.

The MacArthur Foundation, a Chicago organization that annually grants five-year fellowships to between 25 and 40 individuals showing outstanding talent and promise, will increase its already sizable awards by 25%, spokesman Ted Hearne said.

"It was obviously a choice we had (to make)," Hearne said. Last year, the foundation's "genius grants" carried funding of between $164,000 and $300,000, which could be used as the recipient pleased.

Hearne noted that he "did a little lobbying" for a grandfather exemption for those fellows whose five-year awards were still in force. Otherwise, he said, they "would have technically been affected" by the law.

The Pulitzer Prize Board in New York, which honors outstanding journalism, literature, drama and music, said reaction to the tax change "hasn't been terribly strong," probably because the amount of each award is a "pretty piddling" $1,000, said Robert C. Christopher, the board's secretary.

"We might want to consider increasing the prizes somewhat to compensate," he said, adding that the board is expected to make a decision about the issue at its April meeting. "We've felt for some time now that these were pretty minimal prizes in a material sense. It was more the honor of the thing than the money, by far."

For the most part, those connected with such prizes agree that the change was an inevitable part of tax reform, even though the amount the government will collect from prize recipients is fairly insignificant.

"It's really not a revenue issue," said Edie of the Council on Foundations. "It's a fairness issue."

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