From the Houston Chronicle, March 14:
Roger Aksamit, an attorney with Thompson & Knight, speaking about a Houston man who won a year’s supply of coupons from a donut shop as one of the lucky prize-winners during an Astros Fan Appreciation Day. The Internal Revenue Service sent the man a Form 1099, informing him that he owed taxes on $927.61.
This is one of the things that I believe is so badly wrong with our tax code, it borders on the ludicrous.
The man isn’t going to go to that donut shop and get a free donut and coffee 365 days of the year. He will give some coupons away and he will abandon many at the end of the year. Paying the government $927 in taxes for this great win is a slap in the face. He would be better off buying the donuts and coffee as often as he felt like it. I am certain that would not add up to $927.
The problem is, as soon as you accept such an award, you owe taxes, this appears to be no backing out.
Lesson: Do not accept winnings of anything but cash, as you owe cash in taxes for the privilege of winning.