on and had their salaries by the amount of the Therefore, the employees believe
ID: 2544286 • Letter: O
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on and had their salaries by the amount of the Therefore, the employees believe they should be permitted to exclude the payments from gross income. The employees have asked you to research the issue. March at the Astros' home opener, as a result of a random drawing of him to a cup of coffee and a free doughnut or a dozen doughnut holes. Research Problem 3. Your client, John Butler, is an avid Houston Astros fan. Last dance at the game, John won 300 Shipley Do-Nut coupons. Each coupon entitled John used some of the coupons (approximately 20), but he found that eating so many doughnuts directly conflicted with his goal of losing weight. The unused cou- pons expired on January 1, 2017. Thus, John was surprised when he received a Fom 1099 in February 2017 that valued his prize at $900. John would like to know whether the value of the doughnut coupons should be included in income and asks you to research his question. If you conclude that their value should be included in income, John also would like to know if he can reduce his gross income by including in income only the value of the coupons that he used. He has the unused coupons as documentation that neither he nor anyone else used them. Research Problem 4. Aubrey Brown is a decorated veteran of the Vietnam War. As a result of his exposure to Agent Orange during the war, Aubrey developed lung can- cer and is unable to work. He received $12,000 of Social Security disability paymentsExplanation / Answer
The case is similar to the real life case of Bob Choate who in 2011 won the same free donuts for a year.
However, as was decided in the case, since Bob accepted and signed the form and received coupans, he will be required to pay tax on the gifts amount estimated by IRS. Had he not signed the form that time he would not have been taxed. It does not matter whether he refuse to redeem the coupans later or not. Liability arises as soon as he acknowledged the gift.
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.
Thus in the given case also Buttler have to pay the demand raised by IRS in form 1099.
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