BBFlatt wrote:Interesting question. Clearly the full $900k he won is taxable, less whatever he put up to enter the sweepstakes; but what if he bet on a loser? Would the $100k he was allowed to "bet" taxable income? I wonder if he had the ability to opt out of the bet and just take the money (or some portion thereof). If he could have taken a lesser amount, say $50k, would that be arguably the value of the prize he won?
If he no option other than to make the bet, did he really receive anything of value, and if so what was its worth?
I may be mistaken, but I believe that if he had been allowed to opt out of the bet and take the $100,000 or some lesser amount, that amount would be taxable. However, if the terms were that he could not "opt out" and he was forced to place a bet on the race, then technically, the amount provided for the bet was not truly his since it was not under his control except to place the bet. If he had lost, I do not believe he would be liable for the taxes on the $100,000. This is the argument that I would make to the IRS. Of course, the tax code might have something to say on the issue, but I have not looked it up.
Let us assume that he lost. Also, let us assume that he could have opted out of the bet and taken $50,000 home. I believe the $50,000 would be at that instant income to him and he would be liable for taxes on it. If that is the case, it would be a bad situation for him if he had bet and lost.
Since he won, the amount of the bet is a part of his winnings now. While I do not follow racing, I believe that Super Saver was listed at 8 to 1 at race time. This means that for every $1 bet there is an $8 profit if the person wins. So, his $900,000 win includes the $100,000 bet and the $800,000 payout on the bet. The entire $900,000 is taxable to him since the $100,000 was not his before the bet.
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