Following up on last week's post, Does Sarah Palin Have a Tax Problem?, which discussed the tax consequences of the charity auction of dinner with Governor Palin for $63,500, Joe Kristan reports that Rev. Rul. 68-503 has a history dating back to Eleanor Roosevelt:

According to a standard treatise, Bittker and Lokken's Federal Taxation of Income, Estates, and Gifts, Mrs. Roosevelt had her own radio show, but she refused to accept payment for it, and the sponsor instead made payments to a charity. The IRS ruled that she did not have to pick up the sponsorship in gross income.

Subsequent rulings have refined the IRS position; it is no longer clear that Mrs. Roosevelt's radio shows would be tax free today. The more recent rulings, including the one I cited in saying that Ms. Palin likely has no gross income, distinguish between revenues that arise only because of the fund-raising event and those that someone would earn anyway, but assigns to charity. Bittker and Lokken explain:

A 1971 ruling states that an individual is not taxed "in a case where the individual does not participate directly or indirectly in the contract pursuant to which his services are made available [by the exempt organization] to the third party and if he has no right to receive, or direct the use or disposition of the amounts so paid." Entertainers performing at a specially scheduled benefit night should ordinarily have little difficulty in satisfying the requirements of these rulings, but they may find it hard to extricate themselves from existing contractual arrangements and shift to an exempt organization income "which would normally be that of the individual artist."

As far as I can tell, nobody says Ms. Palin had already arranged to auction herself as a dinner date, and then assigned the proceeds to charity as a tax dodge. You could argue that a dinner date is not "entertainment" (just ask my old dates), but it seems awfully nit-picky to say that this is fundamentally different from singing at a charity benefit; it's merely a different sort of performance, with an audience of one. …

I have found nothing in repeated electronic searches of IRS rulings and court cases that directly addresses this situation. There appears to be no case where the IRS has ruled against, or taken to court, a taxpayer who was a dinner-date auction "prize." The IRS has in fact neglected the scourge of charity dinner-dates.