Aside from the winners, there's no one more excited about
sweepstakes prizes than the IRS. States that collect income taxes
get pretty tickled, too.
Many sweepstakes winners don't realize they have partners
when it comes to accepting their prize. The IRS and state
treasurers don't care who wins the prize because they are
guaranteed to receive a share of virtually every prize awarded.
(They may, however, root for a winner in the highest tax
Thompson Coburn's tax gurus can speak to this more
specifically, but here are some basic facts about state and federal
tax laws that sweepstakes creators need to know.
The IRS and many states consider the value of a sweepstakes
prize as "other income" for the winner and treat it like
his or her salary. If a sweepstakes has a cash prize, the
"income" is obviously the dollar amount of the prize. If
the prize includes non-cash items or services, it's the
sponsor's responsibility to determine the approximate retail
value (ARV) of each such prize.
If the ARV of the prize is $600 or more, the sponsor (or the
prize provider if the sponsor is not furnishing the prizes) must
notify the winner of the amount of "income" they will
receive and send the winner an IRS Form 1099-Misc. at the end of
One of the questions that I routinely receive is whether a
person who wins a prize valued under $600 has to pay any tax.
It's a widely held but incorrect belief by many that if the
prize value is less than $600, the winner isn't required to pay
any income tax. This myth may be based on the fact that a winner
will not receive a Form 1099 Misc. But that doesn't release the
winner from paying income tax. Sweepstakes winners are required to
pay taxes on the value of the prize they have won, regardless of
the value of that prize.
Sponsors should make it clear to all persons entering the
sweepstakes that the winner will be responsible for all taxes. At a
minimum, this language should be included in the official rules. I
generally like to put this disclosure in bold type
so that it is very conspicuous even if an entrant doesn't read
other portions of the rules.
Also, I don't believe the sponsor of a sweepstakes should
provide advice to a winner concerning tax laws and regulations. The
better practice is to tell winners that any such questions should
be directed to the winner's tax lawyer or advisor. Similarly,
because tax laws are constantly changing, I want to remind all
readers of this blog to consult with your own tax advisor before
creating your next sweepstakes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The favoured tax status of foreigners planning not to stay in the UK on a long term basis (so called 'non-doms') became a hot topic in the run up to the UK General Election in May 2015, and one of George Osborne's early acts as Chancellor was to announce changes to the regime.
Many are aware that the principal income tax consequences of
expatriation are usually immediate – under the
‘mark-to-market' regime, a ‘covered
expatriate' is generally deemed to sell all of his property,
regardless of its location, on the day before he ceases to be
taxable as a US resident.
We hope you've enjoyed receiving our weekly Tax Policy Update. Our McGuireWoods Tax Policy Team is dedicated to providing our clients with up-to-the-minute information, unique insights, and detailed analysis of tax policy developments.
On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (the "Bill"), which repeals the TEFRA Unified Audit Procedures and replaces them with a radically modified "corporate" model for partnership tax audits.