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<<A friend of mine just won 5000 in a radio contest. (lucky dog!) They gave her the full amount after she filled out the paperwork. Even with this winning she'll still be about equal with the poverty level, give or take a couple thousand.>>

JAB's right on the mark. I would be reported to her as a "prize" or "award", and will be reported by her as miscellaneous income.

If the amount received was $5k in CASH, then you don't have any wiggle room as to what needs to be reported (the $5k, obviously).

But if the $5k was received in "in kind" prizes (such as airline trips, hotels, or other "hard" assets), then she might be able to reduce the amount that is required to be reported. These type of prizes are generally reported at FULL retail value. Your friend only has to report the "fair market value" of the stuff. So by doing some research, she might be able to legally report something less (perhaps substantially less) than the $5k that will actually be reported to her.

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