IRS Ruling Letter On Sweepstakes Prizes?


H

Hank Murphy

I won a car in 2004. I was informed that I would receive a
1099 for the Manufacturer's Suggested Retail Price for the
car, in other words the sticker price.

In fact, the model I won is frequently advertised for less
than MSRP. I saved an ad with a price about $4000 less than
the MSRP. Without going into details, the car is a domestic
model named after a well-known gambling area in another
continent.

I have heard in sweepstakes hobbyist circles that there is a
way to contest (oops, no pun intended!) the amount on a 1099
given for a merchandise award. I didn't keep the reference,
but I believe an IRS ruling letter was involved.

Does this sound familiar to anyone? If not, how does one go
about researching IRS ruling letters? I found a list at:

http://www.irs.gov/foia/lists/0,,id=97715,00.html

but I suspect it is not ruling letters. (Warning: this page
loads vvveeeerrrryyyy ssssllllooowwwlllyyy...)

Without access to a commercial service (e.g. CCH), is there
an index or anything available to John Q. Public where I
might research this further? Or does the IRS make them
available on CD?

Thanks in advance for any replies, and have a happy tax
season,

Hank Murphy
speaking only for myselt
 
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M

Mike Cook

Hank Murphy said:
I won a car in 2004. I was informed that I would receive a
1099 for the Manufacturer's Suggested Retail Price for the
car, in other words the sticker price.

In fact, the model I won is frequently advertised for less
than MSRP. I saved an ad with a price about $4000 less than
the MSRP. Without going into details, the car is a domestic
model named after a well-known gambling area in another
continent.

I have heard in sweepstakes hobbyist circles that there is a
way to contest (oops, no pun intended!) the amount on a 1099
given for a merchandise award. I didn't keep the reference,
but I believe an IRS ruling letter was involved.

Does this sound familiar to anyone? If not, how does one go
about researching IRS ruling letters? I found a list at:

http://www.irs.gov/foia/lists/0,,id=97715,00.html

but I suspect it is not ruling letters. (Warning: this page
loads vvveeeerrrryyyy ssssllllooowwwlllyyy...)

Without access to a commercial service (e.g. CCH), is there
an index or anything available to John Q. Public where I
might research this further? Or does the IRS make them
available on CD?
I don't know anything about ruling letters, I am not a tax
professional. However, I am a sweepstakes professional,
having given away many millions of dollars in prizes. I
suggest you contact the sweepstakes sponsor and request that
they (or their agent) issue a 1099 for the ARV, average
retail value, of the car, rather than the sticker price.
Most sponsors do this, we do it all the time to help out the
winners.

If they are not willing to help you, then proceed to finding
professional tax advice, here or locally to help you file.
You should not have to pay on the sticker price to the
extent you can document ARV. The sponsor should help you
out, it is to their benefit as well to make everyone happy.

Good luck --Mike
 
H

Harlan Lunsford

Hank said:
I won a car in 2004. I was informed that I would receive a
1099 for the Manufacturer's Suggested Retail Price for the
car, in other words the sticker price.

In fact, the model I won is frequently advertised for less
than MSRP. I saved an ad with a price about $4000 less than
the MSRP. Without going into details, the car is a domestic
model named after a well-known gambling area in another
continent.

I have heard in sweepstakes hobbyist circles that there is a
way to contest (oops, no pun intended!) the amount on a 1099
given for a merchandise award. I didn't keep the reference,
but I believe an IRS ruling letter was involved.

Does this sound familiar to anyone? If not, how does one go
about researching IRS ruling letters? I found a list at:

http://www.irs.gov/foia/lists/0,,id=97715,00.html

but I suspect it is not ruling letters. (Warning: this page
loads vvveeeerrrryyyy ssssllllooowwwlllyyy...)

Without access to a commercial service (e.g. CCH), is there
an index or anything available to John Q. Public where I
might research this further? Or does the IRS make them
available on CD?

Thanks in advance for any replies, and have a happy tax
season,
Last line first; thanks! I needed that after a very busy
day.

Now, to your problem. Very simply report the fmv on line
21 of 1040 and attached a copy of the 1099 along with a
statement to the return to explain the 4000 difference.
Also attach copy of the ad you had the foresight to keep.
That's all there is to it.

ChEAr$,
Harlan Lunsford, EA n LA
 
D

DORFMONT

That's just the way I have done it for years. One of my
clients won a bed from Sears one year. Sears valued it at
$900. My client found a Sears ad in the local paper for the
same bed at $600. We used the $600 value and attached the
ad. The same thing happened when another client won a trip.
I told him to go to his local travel agent and get prices on
the same accomodations and transportation, etc. at the best
possible price. He got it all documented and we justifed the
reduced FMV. Most prizes are valued at full retail to give
the sponsors an appearance of being more generous. Most
prizes can be purchased readily for less.

Linda Dorfmont E.A., CFP, CSA
 
B

Barney Byrd

Hank Murphy said:
I have heard in sweepstakes hobbyist circles that there is
a way to contest (oops, no pun intended!) the amount on a
1099 given for a merchandise award. I didn't keep the
reference, but I believe an IRS ruling letter was involved.
I'm not aware of a letter ruling but Treasury Regulation
§ 1.74-1 is on point. See § 1.74-1(a)(2) below.

=======================

TITLE 26 -- INTERNAL REVENUE
CHAPTER I -- INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
SUBCHAPTER A -- INCOME TAX
PART 1 -- INCOME TAXES
NORMAL TAXES AND SURTAXES
COMPUTATION OF TAXABLE INCOME
ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

26 CFR 1.74-1

§ 1.74-1 Prizes and awards.

(a) Inclusion in gross income.

(1) Section 74(a) requires the inclusion in gross income of
all amounts received as prizes and awards, unless such
prizes or awards qualify as an exclusion from gross income
under subsection (b), or unless such prize or award is a
scholarship or fellowship grant excluded from gross income
by section 117. Prizes and awards which are includible in
gross income include (but are not limited to) amounts
received from radio and television giveaway shows, door
prizes, and awards in contests of all types, as well as any
prizes and awards from an employer to an employee in
recognition of some achievement in connection with his
employment.

(2) If the prize or award is not made in money but is made
in goods or services, the fair market value of the goods or
services is the amount to be included in income.

=======================

Barney Byrd
 
T

TaxSrv

Harlan Lunsford said:
Now, to your problem. Very simply report the fmv on line
21 of 1040 and attached a copy of the 1099 along with a
statement to the return to explain the 4000 difference.
Also attach copy of the ad you had the foresight to keep.
That's all there is to it.
All good, but I would not attach the ad, just narratively
explain the sources for the valuation, but first....

I checked edmunds.com for the ARV of 2005 Foreign Gambling
Meccas, and $4,000 off MSRP is about $2,000 under dealer
invoice for the base model. That ad price may be just one
dealer's means of moving vehicles on which they're about to
lose holdback, or based upon a dealer incentive. So it's a
valid retail value only if the prize vehicle was rec'd
during the precise period the ad was valid.

Attaching one or several documents for an item like this
allows IRS to review your entire factual position for free
to see if they might poke holes in it. Alternatively,
telling IRS in effect "here's narratively my methodology,
and if you audit me I will present all the supporting
documents," makes IRS factor in a higher probability of
no-change in deciding if exam is warranted. They know cars
aren't sold for sticker, with rare exceptions.

In this particular case, it would good to have a range of ad
prices and research from paper price guides back then, which
may be available at the local library. That stuff may be
harder to find later when audited, and IRS can easily take
that ad, if that's your sole position, and contact the
dealer for the particulars of that sale.

Fred F.
 
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L

Lanny Williams

I'm not aware of a letter ruling but Treasury Regulation
§ 1.74-1 is on point. See § 1.74-1(a)(2) below.

=======================

TITLE 26 -- INTERNAL REVENUE
CHAPTER I -- INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
SUBCHAPTER A -- INCOME TAX
PART 1 -- INCOME TAXES
NORMAL TAXES AND SURTAXES
COMPUTATION OF TAXABLE INCOME
ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

26 CFR 1.74-1

§ 1.74-1 Prizes and awards.

(a) Inclusion in gross income.

(1) Section 74(a) requires the inclusion in gross income of
all amounts received as prizes and awards, unless such
prizes or awards qualify as an exclusion from gross income
under subsection (b), or unless such prize or award is a
scholarship or fellowship grant excluded from gross income
by section 117. Prizes and awards which are includible in
gross income include (but are not limited to) amounts
received from radio and television giveaway shows, door
prizes, and awards in contests of all types, as well as any
prizes and awards from an employer to an employee in
recognition of some achievement in connection with his
employment.

(2) If the prize or award is not made in money but is made
in goods or services, the fair market value of the goods or
services is the amount to be included in income.
=======================
Some years ago, one of my clients won several thousand
dollars and a number of prizes on Jeopardy. He received two
1099s, one for the cash and one for the prizes.

The 1099 for the prizes was for a value much higher than the
items could be purchased for. My client collected ads, etc.
for these items and we used those values.

His check was dated 12/23/X1 and he received a 1099 for that year.
However, the envelope in which the check was mailed had a very clear
post mark of 1/6/X2! We took the position that the actual receipt was
in X2 and paid the tax in the following year. IRS sent a letter
proposing to assess tax for X1. We wrote a letter and sent copies of
the check and envelope and never heard another word.

So, if the winner can document a different value, IRS will
accept that.
 
R

rick++

Be sure the ad has a date on it for within 30 days of the
prize award. Else go to the library and copy enough of the
ad page with the date.
 
H

Harlan Lunsford

TaxSrv wrote:

(snipped....)
Attaching one or several documents for an item like this
allows IRS to review your entire factual position for free
to see if they might poke holes in it. Alternatively,
telling IRS in effect "here's narratively my methodology,
and if you audit me I will present all the supporting
documents," makes IRS factor in a higher probability of
no-change in deciding if exam is warranted. They know cars
aren't sold for sticker, with rare exceptions.

In this particular case, it would good to have a range of ad
prices and research from paper price guides back then, which
may be available at the local library. That stuff may be
harder to find later when audited, and IRS can easily take
that ad, if that's your sole position, and contact the
dealer for the particulars of that sale.
Fred brings up some very valid points here (he personally
know whereof he speaks, btw).

Many times we do need to pick and choose just how much
information to provide or not provide. We never know the
education or mentality of the IRS person handling something
for us. (like when I was joking with a collection type
saying "surely you MUST know where Bensalem is.", she
haughtingly accused me of being sarcastic!)

So, like the old military adage says, "never volunteer".
Don't send unnecessary items, it'll just confuse them and
may, as Fred points out, cloudy the issue and provide to
much exposure.

On the other side of the coin, I've some times gotten the
impression when an IRS auditor/examiner has to question
something, he really just want you to (curtesy of Clint
Eastwood) "give me a reason." why something is or is not
correct, so he can close the case quickly.

Who else has gotten these impressions?

ChEAr$,
Harlan Lunsford, EA n LA
Fri, 14 Jan 2005
 
H

Harlan Lunsford

Some years ago, one of my clients won several thousand
dollars and a number of prizes on Jeopardy. He received two
1099s, one for the cash and one for the prizes.

The 1099 for the prizes was for a value much higher than the
items could be purchased for. My client collected ads, etc.
for these items and we used those values.

His check was dated 12/23/X1 and he received a 1099 for that year.
However, the envelope in which the check was mailed had a very clear
post mark of 1/6/X2! We took the position that the actual receipt was
in X2 and paid the tax in the following year. IRS sent a letter
proposing to assess tax for X1. We wrote a letter and sent copies of
the check and envelope and never heard another word.

So, if the winner can document a different value, IRS will
accept that.
Righhhhtt! Per Clint Eastwood, "give me a reason, punk!"

ChEAr$,
Harlan Lunsford, EA n LA
Fri, 14 Jan 2005
 
H

Hank Murphy

TaxSrv said:
"Harlan Lunsford" wrote:
All good, but I would not attach the ad, just narratively
explain the sources for the valuation, but first....

I checked edmunds.com for the ARV of 2005 Foreign Gambling
Meccas, and $4,000 off MSRP is about $2,000 under dealer
invoice for the base model.
<snip>

Actually, there were enough options on the car to push it
above base, and I think they included the shipping charge in
the valuation that I anticipate will show up on the 1099, so
it's not exactly apples to apples. But your point is valid.
Attaching one or several documents for an item like this
allows IRS to review your entire factual position for free
to see if they might poke holes in it. Alternatively,
telling IRS in effect "here's narratively my methodology,
and if you audit me I will present all the supporting
documents," makes IRS factor in a higher probability of
no-change in deciding if exam is warranted. They know cars
aren't sold for sticker, with rare exceptions.
Great advice! I was wondering how to handle that!

Thanks, Fred, and to all who responded.

Hank Murphy
speaking only for myself
 
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V

Vic Dura

RE: Re: IRS Ruling Letter On
Sweepstakes Prizes? "TaxSrv said:
All good, but I would not attach the ad, just narratively
explain the sources for the valuation, but first....
In a situation like this, what is the best way to attach a
narrative? Should it be typed out on a piece of paper with a
heading such as "Ref: John Q Public, ssn: 123-45-6789, 2004
Form 1040 line 21 " and then signed and included with the
1040? Or, is there a special form to be used for attaching
explanations?

Would the IRS be likely to loose just a plain old typed
piece of paper? Would the explanation show up if someone
later requested a transcript (Form 4506-T) for that year?
 
J

John H. Fisher

All good, but I would not attach the ad, just narratively
In a situation like this, what is the best way to attach a
narrative? Should it be typed out on a piece of paper with a
heading such as "Ref: John Q Public, ssn: 123-45-6789, 2004
Form 1040 line 21 " and then signed and included with the
1040? Or, is there a special form to be used for attaching
explanations?

Would the IRS be likely to loose just a plain old typed
piece of paper? Would the explanation show up if someone
later requested a transcript (Form 4506-T) for that year?
On Line 21, write in 1099 prize ($dollar amount) (minus) -
FMV adjustment = and then put the net amount on column for
line 21.

For instance:

1099 Prize $5000 - FMV Adjustment = $3000.

If IRS wants substantiation, it will request it.

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
T

TaxSrv

Vic Dura said:
In a situation like this, what is the best way to attach a
narrative? Should it be typed out on a piece of paper with
a heading such as "Ref: John Q Public, ssn: 123-45-6789,
2004 Form 1040 line 21 " and then signed and included
with the 1040?
That's exactly it, but there's really no reason to sign it;
no harm if it is.
Would the IRS be likely to loose just a plain old
typed piece of paper?
Not if securely attached to the return.
Would the explanation show up if someone later
requested a transcript (Form 4506-T) for that year?
It would be retrievable only with a request for a copy of
the original paper document using Form 4506.

Fred F.
 
A

Arthur L. Rubin

Vic said:
In a situation like this, what is the best way to attach a
narrative? Should it be typed out on a piece of paper with a
heading such as "Ref: John Q Public, ssn: 123-45-6789, 2004
Form 1040 line 21 " and then signed and included with the
1040? Or, is there a special form to be used for attaching
explanations?
Attachments do not need to be separately signed. There is a
procedure for including explanations of line items on the
return.
Would the IRS be likely to loose just a plain old typed
piece of paper? Would the explanation show up if someone
later requested a transcript (Form 4506-T) for that year?
It probably wouldn't show up on a transcript.
 
V

Vic Dura

All good, but I would not attach the ad, just narratively
On Line 21, write in 1099 prize ($dollar amount) (minus) -
FMV adjustment = and then put the net amount on column for
line 21.

For instance:

1099 Prize $5000 - FMV Adjustment = $3000.

If IRS wants substantiation, it will request it.
Thanks for all the comments on this. One other question:
could a form-8275 (Disclosure Statement) be used for
something like this? I'm just curious about it and trying to
educate myself.
 
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T

TaxSrv

Vic Dura said:
...
Thanks for all the comments on this. One other question:
could a form-8275 (Disclosure Statement) be used for
something like this?
Form 8275 should never be used by ordinary t/ps, unless one
judges it's better to do so than not. It likely subjects
the return to a manual screening it otherwise wouldn't
receive. All it really does, where you're taking a position
that's contentious in current litigation for example, is
reduce your burden from a "substantial basis" to a
"reasonable basis."

Unless the potential tax deficiency is greater that $5,000,
this form generally accomplishes nothing. Also, there's
nothing potentially contentious to disclose here, as the law
is clear. Value = inclusion in income, and value here
should be right off an online calculator like edmunds.com.

Since the concept involves big money issues, which means
wealthy 1040s and big corps, it doesn't matter that you may
be flagging the thing for audit. They are automatically
screened and have a good chance of being audited anyway.

Fred F.
 
H

Harlan Lunsford

All good, but I would not attach the ad, just narratively
Thanks for all the comments on this. One other question:
could a form-8275 (Disclosure Statement) be used for
something like this? I'm just curious about it and trying to
educate myself.
Nope. I would not use the 8275, simply because I'm not
taking any position (whether for myself or a client)
contrary to what is allowed by the tax law or regulations.

You don't advertise in other words, just like a certain
Alabama judge will not wear the ten commandments on his
jacket when he runs for governor next time up.

ChEAr$,
Harlan Lunsford, EA n LA
Tue, 18 Jan 2005
 
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H

Harlan Lunsford

TaxSrv said:
"Vic Dura" wrote:
Not if securely attached to the return.
AhEMMMM!!! Got to tell you now, even that is no guarantee.
Murphy's law: "what ever can go wrong will go wrong." IRS
processing law: "whatever can get lost, just may be lost."

Been there, experienced that.

Nothing personal, Fred.

ChEAr$,
Harlan Lunsford, EA n LA
Tue, 18 Jan 2005
 
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