"And Uncle Sam and his IRS Revenue Agent Buddy Step to the Podium"
Congratulations to the US medalists--but be ready for a tax bill of $3000 to about $9000 on the medals (which come with cash prizes of $10,000 to $25,000) as calculated by the Weekly Standard. While taxes saved are at best cold comfort to bicyclist Taylor Phinney (fourth in two separate events), the basis for the taxation comes from IRC Section 74 on prizes and awards. [Today's s[n]ide comment--When the White House does the customary post-Olympic recession, will the President tell the medalists that they did not "win those medals" because they learned competitive skills at public school athetic teams and used state highways and local roads to get to practice facilities?] The net result: stalwart Olympians such as Ryan Lochte and Missy Franklin could be looking of tax bills in excess of $20,000 (though to be fair, Ms. Franklin as a incoming college student probably will not have a lot of income other than the medal prizes).
Snide comment above aside, taxation of such prizes is consistent with the Internal Revenue Code. Nonetheless, Senator Marco Rubio (R-FL) may have a POLITICAL winner in his proposal to exempt Olympic earnings from taxation.
UPDATE on Ms. Franklin: Based on a Wall Street Journal editorial from Tuesday, Ms. Franklin is actually a "rising" high school senior. Additionally, she is attempting to maintain amateur status for college; thus she will not be signing lucrative contracts to endorse products and may even forswear the cash prizes associated with the medals.