With certain well-defined and narrow exceptions, all prizes and awards are includible in the winner's gross income. [See IRC Sect 74(a)] Where the prize results from the recipient's participation in a contest or lottery, the proceeds constitute gambling winnings. Thus, the purchase of, for example, a raffle ticket, is considered to be a wager and the awarding of the prize is income. Note, however, that Section §451(h) provides that in the case of certain options to choose between cash payment or an annuity for certain prizes and awards, taxpayers are not required to include amounts in gross income immediately merely by reason of having the option. [See Dunnock v. Comr., T.C. Memo 1980-449 (winnings from wagering are gross income under §61) and Rev. Rul. 83-130, 1983-2 C.B. 148 (limitation on gambling losses in raffle ticket purchase).] Prizes and awards may be in the form of cash, goods, merchandise, or services (such as a free trip). Included in the category of includible prizes and awards are amounts received from radio and television give-away shows, door prizes, awards in contests of all types, and prizes or awards given from an employer to an employee in recognition of some achievement in connection with his employment. Where the prize or award is made in goods or services rather than cash, the amount includible in income is the fair market value of such goods or services.
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