Posted on 07/06/2005 3:11:36 AM PDT by stainlessbanner
One winner of a recent American Airlines contest says he would have been better off losing.
The contest, launched as part of the airline's We Know Why You Fly marketing campaign, awarded free tickets to travelers submitting the best videos, essays or photographs about their flying experiences. The grand prize winners were offered 12 round-trip restricted coach tickets for two from the U.S. to anywhere in the world American flies. In exchange, American has the right to use the winning materials for promotional purposes.
The contest's fine print explains that winners must pay federal and state income taxes, where applicable, on American's "approximate retail value" of the 12 round-trip tickets for two, which the airline valued at $52,800, or $2,200 per ticket.
Jack McCall, a New York resident who won American's grand prize in the video category by submitting a video montage of snapshots he and his wife collected during their travels around the world, estimates that federal, state and local taxes on the prize could amount to roughly $19,000, given the couple's probable federal tax bracket and because they live in New York City, where income taxes are high. That's equivalent to about $800 for each of the 24 tickets.
< snip >
AMR Corp.'s American said the grand prize was valued at $52,800 because the IRS requires it to value the prizes and file 1099 tax forms at their "maximum potential value." An American spokesman says the formula for setting that value "has consistently been used for a long time," and is based on a range of potential itineraries, including the most distant international destinations. "It certainly includes some tickets that might be more expensive than the ones" Mr. McCall ultimately could have used, the spokesman said.
(Excerpt) Read more at online.wsj.com ...
Contest name irony
I hate the IRS.
As do all people who actually pay taxes; however, at least half of the country must love it because they pay virtually no taxes. New Yorkers love it regardless because they love big government over all else (at least the 88% who voted for Kerry do anyway)
... 1099 tax forms at their "maximum potential value."
The last time I paid tax on a 1099, it had nothing to do with the income tax bracket I was in. They sent a separate 1099 form for which I was taxed at nearly 50%.
"Max potential value" is also a good reason to never accept points for reward programs with credit cards, spifs, airlines, etc.
can't they sell those tickets?
Cant they just refuse to accept the tickets?
F**k the IRS.
< snip > "American offered him alternatives, including the choice of fewer vouchers. Those trips, however, would still be valued at their maximum potential value, and Mr. McCall declined the offer."
Don't shoot the messenger. Blame Congress. The IRS is just doing what it's told.
If you read the article it says no
Contest winners do have alternatives, according to tax experts. Those who don't agree with the way a company has valued a prize can submit an alternative price with their tax returns, says Martin Nissenbaum, the national director of personal income tax planning for Ernst & Young LLP in New York. He once had a client who won a stereo on "Jeopardy!" that the show valued at $2,000. His client saw an advertisement with a much lower price and sent the Internal Revenue Service the ad with her return to support the lower valuation. It often helps to submit an expert opinion; one from a travel agent would help in Mr. McCall's case, Mr. Nissenbaum said.
Mr. McCall says he was aware of the possibility of challenging American's valuation of the vouchers on his tax return, but he thought that tactic was too risky. "The problem with that is that if the IRS didn't buy it, I'd be" in trouble, he says. "And if I report something different than what American does, that's a red flag for an audit. And who wants to be audited by the IRS?"
Nora Butler, an IRS spokeswoman, says an audit wouldn't necessarily result from such a return. Still, she said the agency might need further clarification. "The best option for a person in this situation is to try to work it out ahead of time" with the company giving the prize away, she says
Anyone care to put their faith in Nora Butler?
All Congress does, is set the ground rules. Then, the beaurocrats take over...
I once bought one $20 raffle ticket for a charity event and won a small pick up truck . Unfortunately I didn't need it, as we already had a great pick up truck. The dealer was not permitted to take it back for cash. (Not sure what law that was) We were able to sell it (at a discount) to someone who needed it but by the time I paid all the necessary taxes etc, it was almost not worth the hassle. I came out ahead about $2500 - still a nice investment but a lot of work to get there. We did use the alternative price method for tax purposes since the organization valued the truck at sticker price, not what they paid for it which was significantly less. The lesson I learned - don't buy a raffle ticket for something you can't use. You might get lucky.
Hurrah! Each day, more and more Americans choose to practice the "Flight Free Lifestyle." Fewer airline flights mean cleaner air, enormous savings in petrol, quieter urban environments, and less chance of having your life wrecked by mad Arabs. Resolve to live "Flight Free" today!
The very reason I never enter a contest that offers material prizes – I could not afford to pay title, tags, taxes and insurance on a new car - or airline tickets. I will take a cash prize.
However, American gets to write off what it states the tickets are worth...
And I thought I was the only one in the country who decided to live 'flight free'! I refuse to change my way of living (carrying pocket knives, nail trimers etc) to accommodate the wimps afraid of their own shadows. The government and the airlines need to be making the people who look like the attackers change their way of living until they can prove they are harmless, not us grey haired old ladies!
Think back a few years. When Big Mac was about to break Maris's home run record there were indepth discussions about the tax liability the person who caught the ball would be subject to if they gave it to Mac because it would then be considered a gift and thus subject to the gift tax.
This just goes to show how out of control, expansive, and burdensom the tax code has grown to be.
Finally the IRS stepped in and decided that the person who ends up with the ball will not be subject to the appropriate tax.
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