People throughout Springfield open their hearts—and wallets—after Bart accidentally burns the family's Christmas presents and claims they were stolen by a burglar, but when the truth is alas revealed, the Simpsons find themselves pariahs.
Homer and Marge are in the car driving to the Try-N-Save, and Homer complains about the car's heater. He bangs on it and liquid squirts out and soaks Marge. Later at the store, Marge asks Homer why he waits until Christmas Eve to do his shopping. Inside the store, frenzied shoppers are quickly snatching the holiday season's most popular toys. Homer, posing as a store cashier, announces the opening of a new check-out lane, where he manages to sneak away with several toys for his children.
At home, the family makes its last-minute Christmas preparations. At bedtime on Christmas Eve, Marge tells everyone no one may open presents until 7 a.m. Just to make sure there is no cheating or unfair advantage, she confiscates all of the alarm clocks.
However, Bart (relying on an old Indian trick) drinks 12 glasses of water in order to wake up early to use the bathroom and get an early look at his presents. He wakes at 5:04 a.m. and (after a quick visit to the bathroom) unwraps his gifts. One of those presents is the coveted Inferno Buster 3000, a remote-controlled fire truck. Bart has fun playing with the truck, until it crashes into the Christmas tree setting it on fire. The flames immediately engulf the plastic Christmas tree and all of the presents beneath it. Bart manages to extinguish the fire before it spreads, and hides the burned evidence outside beneath the snow in the front yard.
When the family comes downstairs at 7:01 a.m., Bart lies to them. He makes up a story about how he witnessed a burglary in progress, the suspect having made off with the tree and all of the family's presents. The police investigate, and Kent Brockman decides to do a human interest story on what he believes is the Simpsons' yuletide misfortune.
As a result of Brockman's report, all in Springfield show their community spirit by giving them a new Christmas tree and $15,000. With the donations, Homer buys a new car (which the dealer marked up from $12,000 just for him), which he promptly drives into a lake, causing the car to blow up.
The next morning, Bart's conscience finally gets to him, and he finally admits the truth to his family. Lisa, Homer and Maggie struggle Bart leading to a fight Marge tries to break them up. Soon, Kent Brockman and the Channel 6 news crew conveniently arrive to do a follow-up story. Homer slaps on a plastic smile and tells the "burglar" that he will be caught, but the story quickly unravels when a cameraman, with help from Santa's Little Helper, finds the burned remains of the Christmas tree. The family is forced to explain, but it is too little, too late for the viewers, who feel they have been scammed. The citizens demand the Simpsons pay back the $15,000, lest they be treated as outcasts.
Marge decides the only alternative is to get another Christmas tree and the same presents, so she becomes a contestant on Jeopardy!; however, Marge performs very poorly. Eventually, everyone in Springfield (including Alex Trebek), having grown tired of waiting for the debt to be repaid, decides to steal everything in the family's house to sell (including Snowball II); on the bright side, everyone forgives the Simpsons for their lies. In the end, the family playfully fights over a tattered washcloth, the only thing they have left and going into A Touch of Frost for their insurance.