Taxation of contest winnings in the US

[Little_Nemo]

@Slash1972

Well, that makes sense. I wonder why Oprah, having heard about the audience members having to pay taxes, didn’t offer to pay them for the audience?

I didn’t offer to pay their taxes either. And I’m assuming you didn’t.

[Little_Nemo]

@Procrustus

I won $4,000 with a Royal Flush at the Reno Airport (yea me) They didn’t withhold any, but I did get a tax form and had to declare it, and pay taxes on it.

I believe $600 is the limit. Any organization giving out a prize at or above that is legally required to report it to the IRS along with the name of the person who won it.

[Slash1972]

@Little_Nemo

I didn’t offer to pay their taxes either. And I’m assuming you didn’t.

Yes, because you and I are the same person as a billionaire who gave away cars to her audience as a promotional gimmick that cost her nothing and cost all her audience members $6000 in taxes :rolleyes:

If I’m ever in her position, I will be sure to pay the taxes and post it here, just to keep your mind at ease.

[obbn]

@Slash1972

Well, that makes sense. I wonder why Oprah, having heard about the audience members having to pay taxes, didn’t offer to pay them for the audience?

If she did pay the taxes would that money also be considered a gift and traxed too?

[DrDeth]

@obbn

If she did pay the taxes would that money also be considered a gift and traxed too?

Again, not a gift. The cars were not a gift. Promotional item.

But yes, in general, if they give you to pay the taxes on the you get, that $ is taxable also.

[vtxrider]

It may not need to be said, but since I have not seen it posted, the winner does have to claim the prize.

I mention this because I was selected to compete in a radio contest. There were two teams and it was sponsored by a clinic that offered medically supervised weight loss. Each member of the winning team got $5,000+ in prizes.

My team won (we lost the largest percentage of weight over 6 weeks) but when it got time to collect, I realized that the $5,000 was made up of mostly continuing to get the products and time of the clinic. And everyone that was in the contest got that.

So, the ‘losers’ got to continue going to the clinic but had to pay nothing and us winners would get a 1099 and have to pay tax on the value of the products and services. The other couple of small prizes were things I did not care about (a gym membership no where near where I live, a photo shoot, a massage gift certificate and a gift certificate to a high end men’s wear shop that I would never shop in anyway.

So I decided I was not going to collect my prize (as the clinic did not require me to show them a gift certificate to continue there). And since I did not collect any prizes from the radio station, I never got a 1099.

But as has been said, any winnings get taxed, and anything over $600 gets a 1099.

[Dewey_Finn]

@Slash1972

@Little_Nemo

I didn’t offer to pay their taxes either. And I’m assuming you didn’t.

Yes, because you and I are the same person as a billionaire who gave away cars to her audience as a promotional gimmick that cost her nothing and cost all her audience members $6000 in taxes :rolleyes:

As mentioned elsewhere in this thread, the audience members had the option of not accepting the car. But if they did accept it, they received an asset worth, perhaps, $20,000 for $6,000 owed on taxes. That still seems a pretty good deal. As also mentioned elsewhere in the thread, they had the option of selling the car and pocketing the difference between whatever they received and the $6,000 tax bill. In other words, they would still come out ahead.

[Czarcasm]

@Dewey_Finn

As mentioned elsewhere in this thread, the audience members had the option of not accepting the car. But if they did accept it, they received an asset worth, perhaps, $20,000 for $6,000 owed on taxes. That still seems a pretty good deal. As also mentioned elsewhere in the thread, they had the option of selling the car and pocketing the difference between whatever they received and the $6,000 tax bill. In other words, they would still come out ahead.

The original price may be $20,000, but what is the resale value?

[Alley_Dweller]

@Czarcasm

Same question: I can see paying for games of chance, but those people on Oprah didn’t enter any contest or play any games of chance, and had no expectation of winning ,or even being given, any prizes. They were given gifts, not earning income.
edited to add: NM-answered.

Unearned income, unless explicitly excluded by the tax code, is subject to income tax.

@Czarcasm

I’m not finding a passage that says “If the giver of the gift refuses to pay the tax, the recipient is stuck with the bill.”

26 U.S. Code § 6324 - Special liens for estate and gift taxes

(b) Lien for gift tax

Except as otherwise provided in subsection (c), unless the gift tax imposed by chapter 12 is sooner paid in full or becomes unenforceable by reason of lapse of time, such tax shall be a lien upon all gifts made during the period for which the return was filed, for 10 years from the date the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift.

However, having said that, it is entirely implausible that the IRS would pursue the recipient for gift tax just because an easy target like GM didn’t feel like paying its taxes. Paying taxes is not optional. Willful failure to pay tax is a crime, punishable by fines and jail time. People seem to be suggesting that GM might have willfully refused to pay the gift tax. (It’s not a gift as the term is used in the tax code, so no gift tax was due.) There are consequences when you say, “Yeah, I could pay the tax and I know the the tax is due, but I don’t feel like paying it.”

[Hari_Seldon]

What about Nobel prizes and the like?

[Dewey_Finn]

They’re taxable as well.

[Alley_Dweller]

U.S. Supreme Court
Commissioner v. Duberstein, 363 U.S. 278 (1960)

This Court has indicated that a voluntarily executed transfer of his property by one to another, without any consideration or compensation therefor, though a common law gift, is not necessarily a “gift” within the meaning of the statute. For the Court has shown that the mere absence of a legal or moral obligation to make such a payment does not establish that it is a gift. Old Colony Trust Co. v. Commissioner, 279 U. S. 716, 279 U. S. 730. And, importantly, if the payment proceeds primarily from “the constraining force of any moral or legal duty,” or from “the incentive of anticipated benefit” of an economic nature, Bogardus v. Commissioner, 302 U. S. 34, 302 U. S. 41, it is not a gift. And, conversely, “[w]here the payment is in return for services rendered, it is irrelevant that the donor derives no economic benefit from it.” Robertson v. United States, 343 U. S. 711, 343 U. S. 714. [Footnote 7] A gift in the statutory sense, on the other hand, proceeds from a “detached and disinterested generosity,” Commissioner v. LoBue, 351 U. S. 243, 351 U. S. 246; “out of affection, respect, admiration, charity or like impulses.” Robertson v. United States, supra, at 343 U. S. 714. And, in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor’s “intention.”

It is highly unlikely that you would be able to prove that the so-called gift proceeded from a “detached and disinterested generosity out of affection, respect, admiration, charity or like impulses.” Just because something was given to you for free (“without any consideration or compensation therefor”) does not make it a gift as the word is used in the tax code.

I don’t know whether the proper donor of the car should be considered to be GM or Oprah’s production company, but neither acted out of disinterested generosity or affection. They both did this in the course of their business dealings. GM did it to promote their product, Oprah’s company did it in the course of their business which is to produce an entertaining TV show.

[DrDeth]

@Dewey_Finn

They’re taxable as well.

Used to be tax free. Reagan made them taxable, iirc.

[Dewey_Finn]

@Czarcasm

@Dewey_Finn

As mentioned elsewhere in this thread, the audience members had the option of not accepting the car. But if they did accept it, they received an asset worth, perhaps, $20,000 for $6,000 owed on taxes. That still seems a pretty good deal. As also mentioned elsewhere in the thread, they had the option of selling the car and pocketing the difference between whatever they received and the $6,000 tax bill. In other words, they would still come out ahead.

The original price may be $20,000, but what is the resale value?

You would have to be really bad at negotiating if you sold a brand-new car that cost $20,000 new for less than the $6,000 tax bill.

[thelurkinghorror]

@Dewey_Finn

You would have to be really bad at negotiating if you sold a brand-new car that cost $20,000 new for less than the $6,000 tax bill.

Yeah, “the car loses 50% of its value as soon as you drive it off the lot” is a common statement, but not really true.

[DrDeth]

@thelurkinghorror

Yeah, “the car loses 50% of its value as soon as you drive it off the lot” is a common statement, but not really true.

When cars had a three year life, and 100000 miles on the odometer was something your local newspaper did a small story on- maybe.

It’s more like 20%. ymmv

And you can go to Appeals and argue the FMV. If they gave you a car worth $20K and you sold it for $15K, and reported that, I am willing to bet right here and now Appeals would settle your case by splitting the difference.

[Slash1972]

@Dewey_Finn

As mentioned elsewhere in this thread, the audience members had the option of not accepting the car. But if they did accept it, they received an asset worth, perhaps, $20,000 for $6,000 owed on taxes. That still seems a pretty good deal. As also mentioned elsewhere in the thread, they had the option of selling the car and pocketing the difference between whatever they received and the $6,000 tax bill. In other words, they would still come out ahead.

That’s a good point. But in other threads, I’ve read that to claim a prize like that, you need to fork over the taxes immediately, like on Price is Right. Is that not the case here? Or on Price is Right actually. Maybe I misremember the threads.

[Dewey_Finn]

This is a Q&A from The AV Club with someone who won on The Price is Right. She says, “After the show, you fill out some paperwork and basically sign your life away. You say that you’re going to pay the taxes on it. If you win in California, you have to actually pay the California state income tax ahead of time.” So it appears that you do not need to pre-pay the federal taxes (which makes sense, based on how I’ve done my tax return.)

[Alley_Dweller]

@Slash1972

That’s a good point. But in other threads, I’ve read that to claim a prize like that, you need to fork over the taxes immediately, like on Price is Right. Is that not the case here? Or on Price is Right actually. Maybe I misremember the threads.

California, where The Price is Right is filmed, has a withholding tax on non-residents who win prizes there. Illinois, where the Oprah show is filmed, does not.

[md2000]

In Canada there is no tax on lottery or gambling winnings. I have heard that should you win big in Vegas or win the Powerball) under the American-Canadian tax treaty you would be taxed 25% or something like that -it was in the news when Powerball was over a billion. For smaller winnings, there are ads along the highway going north of the border advertising that a company will help you fill in the form to recover the tax the casino withheld (for a fee). Probably simple enough to fill out yourself. To not pay the full tax, you need only prove you crossed back into Canada, i.e. are not a resident of the states.

I also heard stories of the days before casinos were obliged to withhold taxes, when winning slot machines spewed out piles of sliver dollars. The IRS had agents roaming the casino, it was said, ready to pounce on any lucky winner and demand their share.

My wife and I went to a taping of “The View” in NYC last year, on give-away day. Everyone there had to provide ID and fill out a form (for the IRS?). When they found out we were Canadian, they would not give us the form needed to collect the goodies. (We were told it happened any time the gifts exceeded $65.) I presume they have to do the paperwork and working out what sort of form to fill out for different countries (vs. different states) was probably too confusing. A few years before, we’d gotten some gifts there no problem.