Fair Market Value For Sweepstakes Prize

[chris]

Hello, I won a sweepstakes prize last March -- a Steinway
grand piano worth $42,300. Before I could claim the prize,
I had to pay approx. $11,500 up front in taxes which was 27%
of the piano's value. Since I was never in the market to
purchase a $42K or $11.5K piano, I turned around and sold it
for $30K after several failed attempts to sell it at $35K
(via eBay and local newspaper ads). Most viewed the $35K
price as too high since the 5 year warranty was
non-transferable, was no longer brand new, etc.) For my
taxes this year, I received a W-2G (since it was treated the
same as gambling winnings) and it showed that I'd already
paid the taxes, so my taxes in general pretty much went
through as normal. However, I've since been advised that I
should've declared that the fair market value of the piano
was actually $30K since that's all I could sell it for.
Thus, I overpaid taxes on $12,300 ($42,300 - $30,000) which,
at 27%, comes about to $3321 to be refunded. Since we've
moved past 4/15, I've been advised that I could file an
amended return stating that the actual fair market value is
$30K and requesting a refund for $3321. My question to the
board: what is the fair market value of the piano that I
can claim for tax purposes? Is it the original $42,300
(which was the true, retail price of piano if I had
purchased it from a retail store) or is it the $30K that I
sold it for (since that is truly what it was 'worth' on the
open market, once it had been delivered to me and lost its
'brand new' status)? I have all the failed eBay auctions,
failed newspaper ads, and low-ball customer offers
documented. Is there any way I can get my $3321 back?
Thanks,

Chris

 

[Herb Smith]

Hello, I won a sweepstakes prize last March -- a Steinway
grand piano worth $42,300. Before I could claim the prize,
I had to pay approx. $11,500 up front in taxes which was 27%
of the piano's value. Since I was never in the market to
purchase a $42K or $11.5K piano, I turned around and sold it
for $30K after several failed attempts to sell it at $35K
(via eBay and local newspaper ads). Most viewed the $35K
price as too high since the 5 year warranty was
non-transferable, was no longer brand new, etc.) For my
taxes this year, I received a W-2G (since it was treated the
same as gambling winnings) and it showed that I'd already
paid the taxes, so my taxes in general pretty much went
through as normal. However, I've since been advised that I
should've declared that the fair market value of the piano
was actually $30K since that's all I could sell it for.
Thus, I overpaid taxes on $12,300 ($42,300 - $30,000) which,
at 27%, comes about to $3321 to be refunded. Since we've
moved past 4/15, I've been advised that I could file an
amended return stating that the actual fair market value is
$30K and requesting a refund for $3321. My question to the
board: what is the fair market value of the piano that I
can claim for tax purposes? Is it the original $42,300
(which was the true, retail price of piano if I had
purchased it from a retail store) or is it the $30K that I
sold it for (since that is truly what it was 'worth' on the
open market, once it had been delivered to me and lost its
'brand new' status)? I have all the failed eBay auctions,
failed newspaper ads, and low-ball customer offers
documented. Is there any way I can get my $3321 back?

I think you are looking at this from the wrong end. The FAIR
MARKET VALUE (FMV) for tax purposes is NOT what you could
SELL the piano for, but is the best price that you would
have PAID a dealer for the exact same merchandise (with all
warranties, delivery, etc). That may not be as high as
$42,300 (you would have to confirm with a dealer) but it IS
NOT the $30K that you eventually sold it for.

 

[TaxSrv]

Hello, I won a sweepstakes prize last March -- a Steinway
grand piano worth $42,300...I turned around and sold it
for $30K after several failed attempts to sell it at $35K
(via eBay and local newspaper ads). Most viewed the $35K
price as too high since the 5 year warranty was non-transferable,
was no longer brand new, etc.). I've been advised that I could file
an amended return stating that the actual fair market value is
$30K and requesting a refund for $3321. What is the fair market
value of the piano that I can claim for tax purposes?

The loss in value attributable to nontransferrability of the
warranty should be ignored -- that's your loss due to not
having retained the property, and similarly as to any
"softening of the market" in the interim. If you file a
claim for refund on 1040X, and IRS examines it, expect them
to argue that since you sold it shortly after acquisition,
its FMV on date of acquisition is $42K. That's provided
that it's the price the dealer had regularly obtained for
it. It's not unusual either that dealers supply as a prize
to a sweepstakes organization an item which they haven't
been able to "move" at its list price. If you can establish
the latter, then you may have a basis for a claim for
refund, based upon some lesser amount.

eBay prices for high-dollar, no inspection by bidder, and
very difficult to ship items will not reflect true FMV. And
the failure of classified ads may mean only that people
don't shop for $35,000 pianos that way. So the
documentation you have is better than nothing, but unlikely
enough for IRS to concede the issue. The highest weight
will be accorded the value placed upon it per Form W-2G,
presumably the opinion of the dealer providing it, since
they are a disinterested third-party.

Fred F.

 

[Frank S. Duke, Jr.]

Hello, I won a sweepstakes prize last March -- a Steinway
$42,300 is what it was valued by the donor, most likely list
price. What you would have paid for it brand new could be a
very different number. That is the one you should use.

Certainly that is a good solid arms length price so the
value you should pay tax on is somewhere in between.

There will never be a right answer, only an estimate, yours
or the IRS's. Why not take the position that it was worth
what you sold it for. You never really used it. You sold
it in like new condition for an amount you can prove. On a
nice day, when the folks at the IRS want to knock off early
for the weekend, they will never question it. If its a
rainy day and their softball game just got canceled, perhaps
they will want to dispute it. They have to make a case for
why it should be some higher number. At best, you get $3321
back plus a state refund. At worst, you are out only the
cost of the amended return. If you had your taxed done
professionally, that should be minimal. If you used
Turbotax, just the cost of your time.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

 

[Arthur L. Rubin]

Hello, I won a sweepstakes prize last March -- a Steinway
grand piano worth $42,300. Before I could claim the prize,
I had to pay approx. $11,500 up front in taxes which was 27%
of the piano's value.

Actually, it appears they aren't REQUIRED to collect
withholding on non-cash prizes which aren't gambling.
(If you didn't PAY for the sweepstakes entry, it's not
supposed to be reported on a W-2G, but on a 1099, so
I may be missing something....) Furthermore, the
withholding rate has been 25% since 2002....

... Since I was never in the market to
purchase a $42K or $11.5K piano, I turned around and sold it
for $30K after several failed attempts to sell it at $35K
(via eBay and local newspaper ads).

Your note below that the $42K was the actual retail price
suggests that it really is the FMV, unless, perhaps, they
couldn't actually sell any at that price.

I'm posting primarily because the two replies from Friday
omit clarifaction of some additional confusion you've shown,
which may indicate further problems.

As I noted above, sweepstakes prizes are SUPPOSED to be
reported on a 1099-MISC as "Other", rather than on a
W2-G as "gambling winnings". However -- in either case,
you report the FMV (not necessarily what appears on the
report) on line 21 of form 1040, Miscellaneous Income. You
report that withholding, along with any other withholding,
on line 61.

Unless your marginal tax rate were 27%, which is impossible,
your calculation of how much you should get back is
meaningless, even if the FMV calculation is wrong. Your
insistance on "amending" the W-2G suggests that you didn't
report either the prize or the withholding on your tax
return.

In summary: You report the FMV, which I believe to be the
same as reported, on line 21 of form 1040. You report the
withholding on line 61. You report the loss ($12,300) as
a short-term capital loss on Schedule D.

If you didn't do that, you file an amended return on form
1040X, reporting all of that. I have NO IDEA whether you'll
have to pay additional tax or have a refund.

 

[Arthur L. Rubin]

... The highest weight
will be accorded the value placed upon it per Form W-2G,
presumably the opinion of the dealer providing it, since
they are a disinterested third-party.

I disagree, on two grounds, with that. First, the dealer
is NOT a disinterested third-party, as they may be taking
a business deduction for that same value (if it's not
inventory). Second, if the prize was obtained directly
from the manufacturer, then they'd report the "suggested
retail price", which (at least in electronics) has absolutely
nothing to do with the ACTUAL retail price.

However, in this case, the OP noted that it WAS the actual
retail price from that dealer. Unless the dealer was
significantly out-of-line for retail prices in the area,
the W-2G amount is correct.