Tax whammy for winners

Marketplace Staff Nov 17, 2006

Tax whammy for winners

Marketplace Staff Nov 17, 2006


SCOTT JAGOW: A Detroit woman who rarely plays the lottery turned in a winning ticket yesterday for $75 million. The odds in the 12-state lottery: 1 in 175 million. 48-year-old Loretta Brown said her first stop would be to pay her overdue phone and power bills. She’s taking a one-time payment of $44 million after taxes. Ah yes, the taxes. The IRS gets a huge chunk of whatever people win in these things. And on game shows. Apryl Lundsten now on the strings attached.

APRYL LUNDSTEN: Tobi Schneider won it all on the game show “The Price is Right.” We’re talking everything: a motorcyle, a car . . .

TOBI SCHNEIDER: And then I won the big prize, which consisted of luggage, jewelry, a trip to Hawaii and a second trip to Acapulco and Jamaica.

What she didn’t find out until after she won was she had to pay taxes on every item. That’s over $30,000 worth of prizes.

Kay Bell is the tax editor of, that’s a personal finance website.

KAY BELL: People are still surprised that whenever they win any kind of prize, either cash or a product, they owe taxes on that cash or on the value of the item that they win.

She says it doesn’t matter how much you win or what the prize is worth — even $25 — you still have to pay.

David Berger is a CPA and tax attorney in Los Angeles.

DAVID BERGER: It is in fact income and has to be picked up on the individual’s tax return.

That income includes cash, vacations and even home remodels, like the ones on the TV show “Extreme Makeover: Home Edition.” Again, Kay Bell:

BELL: They’re trying to do good things for people who need a new residence, but the house is a ‘winnings’ and that is something the IRS wants its cut of and then you have the ongoing property tax issue.

Which, she says, is tough for folks who can’t afford it. One makeover recipient in Encinitas, California had his property tax doubled from $2,600 to $5,200.

She says when people win money, at least they have the cash to cover the taxes. So what happens if you don’t claim your prize on your taxes? Bell says you might end up in jail, like Richard Hatch – who won a million dollars on the TV show Survivor and then didn’t pay taxes on it.

BELL: The contingent there was whether he thought that CBS was going to cover the taxes for him or whether he set up a foundation but basically the ruling as the courts found was that Mr. Hatch won the money, knew he should have paid the taxes on the $1 million, and then refused to do so.

There’s another solution here. Tax Attorney David Berger says: refuse the prize.

In Los Angeles, I’m Apryl Lundsten for Marketplace.

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