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No. of Recommendations: 2
Unless we're talking a serious amount of money ($500+? $1000+?), or unless the organization is planning on reporting it to the IRS, seriously, just let it go

I'm looking for a description of legal tax liability, not advice on what I should or shouldn't report. Publication 524 says prizes are taxable but doesn't mention entry fees at all.

Since the gift basket was given to you on the basis of performance (albeit poor performance) and not a lottery, I would consider the entry fee as a miscellaneous itemized deduction subject to 2% AGI threshold. The FMV of the basket would be reported on line 21 of Form 1040. (I haven't researched this, just using some logic. But remember, logic and tax law don't often belong in the same sentence.)

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