It is well known that if you win a prize you need to pay taxes for it. What if the prize awarder instead says “I will give you a great deal: you can buy the prize for one penny”. Would you still need to pay taxes on the prize? (I need an answer fast! No, just kidding.)
Yes. What you just won is an option contract to buy the prize at $0.01. Options have value that can be calculated and you’ll owe taxes on the value of the option.
So does one need to report the value of all coupons used when filing income tax?
Do coupons say “cash value 0.001 cents” to get you out of the taxes? (Or something like that, I don’t have a coupon right now.)
Could the prize awarder declare the value of your option to buy the prize to be 0.001 cents, so you only need to report 0.001 cents?
Could your boss declare the value of your paycheck to be $0.001 so you only have to pay income taxes on that amount? No. The relevant factor is the fair market value of the prize, which isn’t $0.001 merely because the donor says so.
This article explains why coupons have a declared cash value. Why Are Coupons Worth 1/100th of a Cent? | Mental Floss It has nothing to do with income taxes.
What’s the fair market value of a Big Mac? Or anything else I might buy with a coupon?
I don’t know. if you are suggesting that the IRS can’t establish fair market value because I don’t know the value of a Big Mac, I have nothing more to add.
In the OP’s case there is a prize of $X off something. You pay taxes on the $X if you buy the thing. (The situation on same game shows has been so bad at times that a lot of people have refused the super-duper $500 carpet cleaning service since the taxes are more than the true value of the service. A good game show allows you to take the cash equivalent.)
Things like coupons, sales, etc. are available to more people, not selected in a contest, etc.
Did Mark Cuban need to pay taxes on “fair market cost per mile of airflight” - 12 cents each time he flew with his unlimited pass?
If I buy something significantly below market price, I don’t owe income tax on the delta vs “what the price should have been”
If I give my employee a discount that’s more than 20% off of what I normally charge for that product or service, the employee owes income tax on (some of) this discount.
I suspect, but do not know, that the difference lies in access to the discount.
actually in the 90s E! did a "secrets of " series and one episode was on the price is right and bob barker was saying 90 percent of the cars and big ticket items that were won the taxes were so high that people took the cash option but the one thing people kept were the trips to europe and asia
but apparently barker and cbs had a charity fund for the occasional family/person who needed the stuff they won but couldnt afford the taxes so it was covered …
Yep, years ago I had a friend who won on the pyramid show. He didn’t understand that he had to pay taxes on the money he won. He spent it all on stuff. Then when tax time came around he was in a world of hurt.
Yes, that enters into it. A store coupon listed in their ad is a public offer, available to anyone to use. But an employee discount or a company car, etc. are provided only to a limited number of people, as a condition of employment, thus they are considered part of the employment package, and are supposed to be reported as income. (But in many cases, they aren’t big enough to matter, and the IRS doesn’t pursue them much.)
Similar rules apply in states where they have sales taxes: If Grandpa sells his used car to a granddaughter for $1, the state sales tax authority will insist that sales tax is paid on the blue-book value of the car, not $1.
Exactly. Buying something for less than it’s worth at an arms-length transaction isn’t income to the buyer.
Providing a prize to someone, or compensating employees is income, and artificial accounting tricks don’t change that (lawyers and tax agents are very good at deciphering accounting tricks!)
People over here complain all the time about taxes, both direct and indirect; after all, someone has to pay for the NHS.
On the other hand, lottery and prize draw wins are free of tax, and if I sell my £20k car for £1 to my daughter or anyone else, no tax will be payable on either side.
So circling back to the OP’s question, I’m neither an accountant nor a lawyer, but I’m guessing it likely works something like this.
If you win a car on a game show with an MSRP of $20k, you owe taxes on $20k because getting a free car constitutes income.
If you go to a dealership and manage to negotiate the price of that car down to $16k, you don’t owe taxes on that $4,000 because theoretically anyone can go to a dealership and negotiate a similar discount.
If you win on a game show and they offer to “sell” you that car for $1, you would owe taxes on $19,999, because that deal is only available to people who win on that show, not the public in general, and there’s no way in hell you’re going to be able to negotiate that price from a dealer.
As a general rule, whenever you ask “Can I get out of paying taxes by doing X”, the answer will almost always be “No, because the government isn’t stupid, and they want their tax money”.
Where I live, any lottery prize of $1,000 or over leads to an investigation and if you are delinquent in (in this order) back taxes, child support, or student loans, it will be deducted from the prize, in addition to the taxes being taken out of the lottery check.
My parents sometimes play slots and have won a few jackpots over the years, in the $500-1,000 range, and have gotten a check with the taxes taken out, and a 1099 from the casino. 
What you actually mean is - “The government isn’t stupid, some government accountant has already thought about that dodge and come up with a way to prevent evading taxes.” If we can dream it up in front of the keyboard, so can any accountant with any imagination.
(OK, I know that’s a lead-in to some snappy come-backs. Definition of an auditor - someone with the training to be an accountant, but lacking the personality.).
When I was in New York a several years ago, we went to a taping of a morning show and got some free stuff. When we went again two years ago, they had everyone waiting to be in the audience fill out a form for tax purposes so they could declare the gifts. We were from Canada, so we were not given a form or the gifts. probably too confusing tax-wise. I assume for assorted states, the onus is on the recipient to declare the gift, whereas for foreigners they would hold the studio to account.
Also should note lottery and other prizes in Canada are not taxable. And we have free health care… 
What’s the price on the menu? That’s the FMV. However, the IRS also doesnt really care about de minimus things, like a Big Mac, or really anything up to around $400 or so. I won a $1000 gift card once, however, and they gave me a 1099.
As for a discount, if that discount is readily available to a large class of people, then that’s fine. Like all residents or firefighters or everyone named “Jim”. But not just “Jim Peebles”.
Now, if you could show that $16K was a normal discount, and you reported that much, (total $20000, taxable $16000 with a letter explaining) you would possibly get audited, or maybe just a correspondence one issue audit. You could quite possibly win in *Appeals *for that. But be prepared to lose. It would be worth a try, but I’d want solid documentation, like the Edmunds page and a letter from a dealership, and several pages of ads.
“FMV” is not always the MSRP.
Yes, my Bro was a tax auditor for years and now works as a EA.