'Lucky winner' at Astros game receives IRS bill for $927 for year's supply of coffee & donuts
Choate, 56, of Houston last fall won a year's supply of coupons from Shipley's Do-Nuts as one of the lucky prize-winners during Astros Fan Appreciation Day at Minute Maid Park.

"I went up to the customer service window, fat, dumb and happy, and signed a form and picked up a fistful of certificates, each good for a free doughnut or a dozen doughnut holes and one free cup of coffee," he said.

But last month, much like the Grim Reaper, the punch line to his prize landed in Choate's mailbox: an Internal Revenue Service Form 1099, informing him that he owed taxes on $927.61 in "free" coffee and doughnuts.

Choate, mind you, is no rube. He knew about Form 1099s, and he presumed there would be some tax liability for his edible appreciation. Nearly a thousand bucks, however, exceeded his expectations considerably.
The Astros should have known better and given a prize of lesser value.
A quick google suggests that lottery winnings are taxed as ordinary income, so the IRS wouldn't take more than 39.6%, surely.
The federal tax code states that prizes and awards are subject for taxation "at their fair market value." If prizes are valued at more than $600, donors are required to issue a Form 1099 stating the value of the gift or prize.

Shipley's charges 83 cents for a glazed doughnut, $1.25 for doughnut holes and $1.25 for a small cup of coffee, so the maximum value per coupon of about $2.50, multiplied by 365, comes to approximately the $927.61 on Choate's 1099.
Mmm, Shipley's Donuts. I'll take them over those cake-y Krispy Kreme anyday.
Even if Choate never uses all the coupons, which have no expiration date and, thus, can be used beyond this year, Aksamit said the IRS will demand its dough.

"The minute you sign to accept the award, you get tagged," he said. "The only option is not to accept the award."
Posted by: gromky 2011-03-19