In need of advice

[Waldo]

My client won a free landscaping for her house. The work was purported to have a value of $25,000 because the newspaper that sponsored the contest promised $25,000 in advertising in return to the landscaper. My client has made numerous attempts to get a 1099 showing how much she actually has to include in her income. No one at the newspaper has an answer for her. I'm curious to know what others would suggest.

[Beth]

Landscaping Cost Advise

How about getting hold of the Landscaper and asking...

[Waldo]

in need of advice

I'm sure that the landscaper who did the work will say $25,000. I told her to ask another landscaper to estimate for her, but she feels that the 1099 will show up and cause her a problem one way or the other.

[jainen]

$25,000 in prize income

Your client has $25,000 in prize income and a $25,000 increase in basis. The landscaper has $25,000 in barter income for his business and can deduct his ordinary costs such as wages and supplies. The newspaper can deduct its ordinary costs in providing the advertising such as wages and supplies.

[oceanlovin'ea]

What if....

the landscaping job did not increase the value in the home by $25,000. What if he didn't do all that he said he would do?

How would you handle that situation?

Just curious.

Linda F

[rosieea]

the landscaping job did not increase the value in the home by $25,000. What if he didn't do all that he said he would do?

How would you handle that situation?

Just curious.

Linda F

It doesn't matter. If she pays tax on $25,000, her basis is increased by $25,000, regardless of whether the home's value increased or whether she got ripped off.

[gkaiseril]

Lower of Reported or FMV

The prize was $25,000.00 of landscaping which can consist of services, material, supplies, etc. It does not need to increase the property value by $25,000.00 just be worth $25,000.00.

Take pictures of the work and get one or more estimates of the value of the work performed and then report the lessor of the $25,000.00 or the estimate.

[jainen]

a reasonable way

>>Take pictures of the work and get one or more estimates<<

That's not a reasonable way to determine value. Any contractor would of course claim to have been able to do it for less--it is always possible to do construction for less! But that wasn't what was contracted for. Landscaping is so variable in terms of scheduling, quality of materials and workmanship, and even things like security, that it's not possible to second guess a contract that somebody else made. So unless it is way out of line -- for example, he tore up the yard and never came back with the plants -- the taxpayer's only two choices are to either decline the prize or accept the prize.

[Luis Mopeo]

Take pictures of the work and get one or more estimates of the value of the work performed and then report the lessor of the $25,000.00 or the estimate.

That's a perfectly reasonable way to establish the value. It's no different than winning a car valued at $40,000 and reporting $30,000 based on a newspaper advertisement offering the same car for that amount.

It's very common for "List" price to be used as stated value for a prize, but in reality the FMV is lower. I don't believe that landscaping would be so very difficult to peg a value.

If the 1099 shows $25,000 but you have a solid basis that FMV is lower, report the lower amount and attach a statement to the return. It happens all the time. Sure, the IRS might ask questions, but that's always a possibility.

[jainen]

TOTALLY different

>>It's no different than winning a car <<

Landscaping services are TOTALLY different from a manufactured item. The photo might show a shrub, but it won't show whether the planting bed was properly prepared, whether the plant is an appropriate cultivar for the region, whether the contractor was responsive to customer concerns about design and scheduling and access, whether the homeowner was exposed to risk by inadequate bonding and worker's comp, and any number of other details that are critical to establishing the value of a contractor's job.

[Snaggletooth]

Why Report More...

...than you have to??

Jainen claims that a competitor would easily undervalue the work if he were not committed to deliver at the value he purposes.

But likewise the issuing contractor is going to claim his work is worth every penny.

This contractor would do the work for less if he had to pursue the job with a bid or other strategy.

[jainen]

the stated value

>>likewise the issuing contractor is going to claim his work is worth every penny<<

Again, it is not "likewise." There is a great deal of difference between bragging that you could do better than a photograph, and putting numbers on an actual invoice. The contractor's "strategy" would certainly embrace the awareness that his customer was a newspaper with an obvious interest in the publicity value of the work, for better or worse. The landscaper himself has advertising, not profit, as his sole motivation, which could be seriously damaged by overcharging. No, I think it would be hard to disprove the stated value.

[Luis Mopeo]

It's a mistake to jump to conclusions and pick sides as to which contractor's price is valid without knowing anything. There's no basis for it.

How can you support Landscaper #1 as legitimate and FMV and at the same time declare Landscapers #'s 2 and 3 to be lowballing?

Just because it shows up on a 1099 is no reason to automatically assume that's FMV.

[jainen]

conclusions

>>It's a mistake to jump to conclusions<<

Well, I haven't jumped to conclusions--I have stated my many reasons. Nobody else has given even a single reason, so maybe they are jumping to conclusions.

My reasons are based on what we know are the facts of the contractor's motivations--he isn't getting a dime, not even for materials, he is only getting advertising and publicity. I have also listed the primary elements of value in the landscape industry for anyone to comment on (again, nobody else has addressed how value might be different with a different contractor).

Say Waldo, is that enough info for you to discuss with your client?

[Black Bart]

Hey! That guy did some work for me.

...he tore up the yard and never came back with the plants

I think where you're going wrong is that you keep jumping to the conclusion that Lou isn't right about this thing and he doesn't like that kind of talk.