Buyers Boggled Over Olympic Boondoggle, NBC Junks Junket With Potential Tax Levy

In a development that could have far-reaching implications for a routine, but often unspoken benefit for media buyers, NBC has taken a tacit ad industry perk - the junket - and given it an explicit value, and it's one that could draw the attention of tax collectors, financial auditors and corporate compliance officers. In notices sent to its Olympic advertisers and media buyers, NBC has informed them that their travel and hospitality packages have an explicit dollar value, MediaDailyNews has learned.

The move, say legal experts, could expose NBC's Olympic guests to thousands of dollars of personal income tax liability and could have a chilling effect on the gifts, chachkas, entertainment and travel boondoggles that are commonly bestowed on buyers by media companies in exchange for being good customers.

NBC's move is the most explicit in a progression of steps being undertaken by advertisers, agencies and media companies to establish more rigorous corporate compliances guidelines in the wake of the Sarbanes Oxley Act, a law that requires publicly traded companies to disclose and certify to shareholders how their money is spent.



While such fringe benefits aren't necessarily illegal or unethical, the fact that they sometimes are not disclosed as personal benefits that carry income tax liabilities may be, and that could influence how some advertisers and agency execs accept them.

In the cast of NBC's Olympic hospitality packages, for example, the network has assigned a value of $12,000 for travel, accommodations, hospitality and attendance to events for a guest and spouse to the Athens Games. NBC valued an alternative package to Bermuda, for Olympic advertisers interested at staying closer to home, at $7,000 per couple.

"Ultimately, it is a potential Pandora's box," said one top buyer, noting, "What do you think the CEO, CFO or COO at Time Warner or Disney are going to do when they hear about this. This is a precedent-setting thing."

Industry law expert, Rick Kurnit, a partner at Frankfurt Kurnit Klein & Selz PC, says while the move is not precedent-setting from a purely legal point-of-view, it could change the way individuals and companies deal with what amounts to an unspoken form of personal compensation.

"It's smart for NBC to do this," says Kurnit, adding that it nonetheless raises issues for the networks customers, who will have to determine whether and how much such perks and junkets quality as a personal "in-kind" benefit, which would be liable to personal income taxes.

"Only the individual knows whether they have been directed by their company to go there to work, or whether they are going there for fun," Kurnit said of the Olympic travel perks. One way to assess that, he said, would be is to determine whether "this something your company would view as a business expense and would reimburse you for."

But a top buyer who said he was relatively knowledgeable about tax laws said the real issue is for spouses. "I think the impact is going to be more on the ability to take spouses to these things, which could impact whether a lot of people would go."

Meanwhile, some executives believe NBC's decision to assign and explicit value on its Olympic junkets could begin impacting other parts of the business. "You don't know how deep it could go," he said, adding, "When will they start issuing 1099s."

The number is a reference to 1099 tax statements, which report income not earned under regular payroll taxes to the IRS.

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