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Tax treatment of NPR-style contributor sweepstakes.

Oftentimes NPR (National Public Radio) stations run sweepstakes in conjunction with their pledge drives, where donating to the station enters you into a sweepstakes for various prizes.

I was curious what the tax treatment would be for someone who wins such a sweepstakes. It seems to me there are perhaps a couple of different ways this could play out. To be concrete, let's assume a $100 contribution and winning a $1000 prize.

  1. Taxpayer has a 0 charitable contribution and 00 of miscellaneous (prize) income.
  2. The 00 prize is considered something of value received for the contribution and is therefore subtracted from the value of the charitable contribution to arrive at the deductible amount. But that would result in a negative value for the charitable contribution, so it seems that can't be right.

What would be the correct treatment?

Reply to
taruss
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In my opinion (1). Approach (2) is correct if this is a gambling winning except that the full $1000 is reported in Line 21 Other Income and the $100 is deducted on Schedule A without any limit.

Reply to
remove ps

I suspect the charity has some fine print which says you need not purchase or donate anything to be eligible to win.

In such cases I've seen the winnings treated as a 1099Misc box 3 prize, not gambling winnings. The prize winnings would be a line 21 item, but not being gambling winnings, do not allow a Schedule A deduction.

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Slightly OT but applies to prize vs gambling income:

Taxpayer won the poker game's bad beat pot in a prominent Las Vegas casino, and had it reported as a 1099Misc box 3 prize.

A bad beat pot is where players contribute a small amount, such as 50c or $1 each poker deal. That goes into a (jack)pot after the casino takes its cut.

Then if you have a really good hand, one casino defines this as AAAJJ or better, and you get beat on that hand, perhaps by A2222, you collect some or all of that pot. In casinos where all players in a game at the time of the bad beat get a small amount from the pot as well.

The casino treats it as a prize, not gambling winnings, and while both are line 21 items, gambling losses cannot be claimed against prize winnings.

Reply to
Arthur Kamlet

But you can deduct the $100 as a charitable contribution, so it's equivalent in tax treatment to gambling in that the $100 is allowed on a different line in Schedule A. I believe gambling losses are not subject to the itemized deduction phaseout, but am not sure.

Reply to
remove ps

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