ACCT 5318
Tax Research – Case 5
Fall 2007

Last year, the Rattameyers, of Oakland, California, were featured on Surprise Home Makeover, a network television show in which families are chosen to receive a “home makeover” by a team of designers, paid for by the producers of the show. The show sent the family to the DisneyWorld Resort in Orlando, Florida for one week, while its team of designers, carpenters, and other construction professionals ripped out substantial portions of their home and made extravagant renovations for its television audience. The Rattameyers entered into a contract with the producers of Surprise Home Makeover in which they rented their home to the producers for one week, in return for $50,000 rent, and an all-expenses paid trip to Disney World for the entire family. The estimated value of the Disney World vacation was $15,000. While the family was away, Surprise Home Makeover’s team of designers essentially gutted the interior of their home, and rebuilt it. They replaced the flooring, wall treatments, all the major appliances, and most of the furniture. They installed a new giant screen plasma television in a new room added onto the house, built a redwood deck in the backyard complete with wetbar, grill and sink, and installed grass, trees, shrubbery and wrought-iron fencing. All considered, the show spent approximately $250,000 renovating and remodeling the Rattameyers’ home. The Rattameyers loved the new home, but even if they had been disappointed, the contract specifically prohibited them from claiming any compensation for damages, real or perceived. The producers assured the Rattameyers that the rent they received ($50,000) is nontaxable since the rental period was for less than 15 days. They also assured them that the value of the improvements would not be taxable until they sell the house, because the improvements were made by the