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IRS Wants Piece of Man's Year of Free Doughnuts

By Stephanie Rabiner, Esq. on March 21, 2011 | Last updated on March 21, 2019

Nothing in life is free.

No, not even Oprah-provided cars and Australian vacations.

Bob Choate learned this the hard way last month when he received an IRS Form 1099 telling him he had to pay taxes on $927.61 worth of supposedly free doughnuts.

During a 2010 Houston Astros Fan Appreciate Day, Bob Choate won a coveted prize: free doughnuts and coffee for a year. Excited at the prospect of daily glazed and jellies, he headed down to the office to collect his prize, explains the Houston Chronicle.

But before he could snag the 365 coupons, he had to sign a form. Chances are it had to do with taxes.

Unfortunately, prizes--both cash and material goods--are considered taxable income. If valued at more than $600, winners are supposed to receive a 1099 from the prize's provider. If not, there still may be federal and state tax liabilities.

What hit Bob Choate so hard was the amount he has to pay for the breakfast treats. The IRS taxes the fair market value of prizes. Even though Choate was given coupons with no resale value, their fair market value is the actual price of coffee and doughnuts at the local shop.

If you're lucky enough to win a prize, consider whether the tax liability is worth it. and if it isn't you could always accept and then donate it, providing a hefty donation.

But, for the love all that is good and holey in this world, don't think that the prize is free. It isn't.

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