Value of Prize

[erchess]

Online friend entered a contest held by Microsoft and won the top prize of a Laptop that was said to be valued at $3,000. This was I think in early 07. He didn't mention to me getting a 1099 Misc but I am sure he did and I am sure the value indicated was 3K. He indicated to me that this was a standard production laptop and starting about a week before his prize was delivered anyone with the 3K could have bought one like it and apparently good numbers of people did. Before tax filing time came the asking price of the computer had dropped to $2700 and his H and R Block preparer offered to list it at that value. He declined.

Oh I almost left this out. I think the contest was only open to computer techs and people like my friend who are studying to be computer techs.

Question one can you list the value of a prize as anything other than its value when you get it? Does it matter if the prize appreciates or depreciates significantly before you file your return?

Question two, assuming that I am right about the contest being for computer techs and students studying to be techs, does that mean that he should have paid SE Tax on the Prize? My understanding would be that if a tax professional wins a prize in a contest only open to tax professionals and those studying to be tax professionals then it is at least arguable that the Pro has to pay SE Tax. I have no idea whether that would apply to the student.

[travis bickle]

we obviously have different thought patterns

good day,

i cannot see how this situation results in SE tax. was the value entered into box 7 or box 3?

the only thing your client did was enter a contest. according to you, he did no work, nor did he render any services. so, how could this be SE-taxable? because the contest sponsor put restriction(s) on it?? what about employers who give out "employee of the quarter" prizes [notice the built in restriction]? by your argument, any employee who wins now has to pay SE tax.

and from the IRS website [http://www.irs.gov/newsroom/article/...5963,00.html]:
"Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income."

Notice what the service says ... "fair market value". so, if your client receives a 1099Misc for $3,000 for a laptop, but you can successfully demonstrate that the FMV is something different, go for it.

lastly, has this all been a hypothetical question?

regards,

[BOB W]

If the value is less than the amount stated, how is that reported since the 1099 shows the higher amount on an electronically filed tax return?

[JON]

Same line

recorded as a subrtraction and noted to adjust to fair market value.

[BOB W]

Thanks>>> Sounds right.

[Davc]

Notice what the service says ... "fair market value". so, if your client receives a 1099Misc for $3,000 for a laptop, but you can successfully demonstrate that the FMV is something different, go for it.

regards,

That should be,"Notice what the service says ... "fair market value". so, if your client receives a 1099Misc for $3,000 for a laptop, but you can successfully demonstrate that the FMV WAS something different AT THE TIME IT WAS WON , go for it."

[travis bickle]

you are correct, davc

That should be,"Notice what the service says ... "fair market value". so, if your client receives a 1099Misc for $3,000 for a laptop, but you can successfully demonstrate that the FMV WAS something different AT THE TIME IT WAS WON , go for it."

thank you for clearing up any misconceptions my original post may have created.

i had a friend who used to do taxes in southern california a few years ago. he ALWAYS got people who won a car on the price is right -- he adjusted down the msrp to what the prevailing price was and has yet to be called on it by the service.

[erchess]

Travis

This is a real case but it involves a friend rather than a client which in turn explains why my knowledge of the facts is hazy.

[travis bickle]

thank you

for your reply. it is appreciated.