Curious about charity running sweepstakes

"Barry Margolin" wrote

The winner receives income for the value of the prize.

The station should issue a 1099 - but often times this gets overlooked.

Also, in some states or localities there is a registration process for these types of gaming activities. Georgia requires it, and I suspect other states may also.

Why not a W-2G? Granted they aren't in the business of wagering, but this income is proceeds from gambling where the proceeds exceeded 200x the bet.

However, a pool of $500 with 1,000 entries worth $1 each is more appropriate for a charity as it then pockets $500 for its charitable purpose.

"D. Stussy" wrote

I don't know if raffles done by a charity are considered gambling.

The only way to make real money on these types of things is to get the prize donated of at a seriously reduced price to the charity.

the other posts I have seen thus far discuss what happens when you win. I don't know that was the OP's question. How do you deduct the payment (er, "contribution") you made for the raffle ticket? I thought I've seen here on MTM that raffle tickets do not qualify as a charitable deduction; others can state yeah or nay with more authority than I.

If you purchase a raffle ticket and before the drawing you donate it to a charity, you may have a deduction for the cost of the ticket.

If it should win, you are still limited to the cost.

Another related article:

That is correct. Here is a quote from Pub. 526, page 7:

"Costs of raffles, bingo, lottery, etc. -- You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance."

Bob Sandler

The winner gets $999 of income. The first $1 is the return of his bet. There is NO deduction to charity involved here. It is gambling, even if sponsored by a qualified charity.

Is there really a "raffle ticket"? It's not like you're being entered into a raffle that someone else could simply purchase a ticket for. Only people who donate to the charity are eligible for the drawing.

Barry Margolin wrote: ...

At least in this state when a charitable organization runs a drawing State Law requires there tickets be available w/o any donation collected (else it wouldn't be "donation" or "free will"). So, indeed, there are some tickets w/ no corresponding contribution; hopefully not terribly many...

In that case I might argue that you don't get anything in exchange for the price you pay, because you could have gotten it without any payment at all. If that's the case, the cost of the ticket might be deductible because you really don't get anything of value in return.

Stu

If the prize is sold at a reduced price, is that the Fair Market Value the winner is taxed on? ("Full list price" is typically a joke.)

Seth

Facts and circumstances would prevail here. Someone who lived in Kansas and won a 65' yacht on Wheel of Idiots and sold it before their Tuesday flight home probably didn't seek out a fair market value price, but dumped it.

It would take actually looking for something that would proof out and support the lower "fair value". Newspaper ad clippings, comparative pricing, etc go a long way. Actual valuations and appraisals help too.

The winner's say so isn't going to be good enough. A quickie sale after the winning isn't going to be good enough.

Paul

do they get to deduct reasonable cost incurred to make the sale. Like a few days lodging before heading back home? Advertising? Research?

I just checked the web site for the station, and indeed this is the case. The drawing for the WWDTM tickets is over, but now they're giving away a $2,500 gift certificate to International Bicycle Centers.

Since the sweepstakes entry is free, there doesn't seem to be any value received for the free entry. So I suppose only the winner has tax obligations.

My advice would be to sell it to a yacht dealer, and require a written statement on letterhead that the price paid represented Fair Market Value for a customer-to-dealer sale.

Why doesn't the usual definition of "Fair Market Value" apply? Willing seller, willing buyer, neither forced to act?

Seth