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<<Why is that? Is there a rigid definition of 'gambling income' that clearly excludes this $5000? Should we find out what the contest involved? >>

In point of fact, the code does distinguish between different types of prizes and opposed to gambling.

Perhaps the most widespread form of prizes are those awarded in connection with lotteries, national sweepstakes or essay contests. The proceeds of lotteries and sweepstakes are includible in gross income, subject to an offset (often minuscule) for the cost of the ticket used to enter the event.

Don't confuse the word "lottery" here with your normal state lottery...where there is gambling involved.

It can be a tricky definition to get your arms around. But generally, an award or sweepstakes is not necessarily considered "gambling".

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