Is this prize taxable?

May 09, 2018 3 Replies
N

Every spring, a local furniture store advertises that your furniture purchase price will be refunded if some "event" happens. The "event" has a low probability of occurring and is usually tied to the Boston Red Sox. This year the "event" is a no-hitter during the latter half of the season. I assume the furniture store takes out an insurance policy so the cost of the "free" furniture is built into the price.



I've heard of car dealers doing similar promotions depending on snowfall or some other weather event.



I assume the buyer of the insurance policy writes off the premium as a business expense. Does the person who receives "free" furniture have to pay taxes on the refund?


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S

It seems to me that it's more than just a refund or a discount. The customer ends up with the furniture and all his money back. I'd think the IRS would consider that taxable as a prize rather than just a discount.

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J

Agree, 100%. And unlike the TV prize show, where people start by having an item whose price is full retail, and then try to argue 'fair value' for tax purposes, the taxpayer has literally willingly paid the price they already believe to be fair. And gets a check for that exact amount. Tough to even consider arguing that valuation.

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