Kentucky Derby Ambulance Chaser's Lead

[Noah]

Glenn Fullerton, who won the sweepstakes that let him put down a $100,000 bet on Super Saver. He might have been the happiest person on the track, save for the trainer Todd Pletcher, who won his first Derby after an 0-for-24 streak. Pletcher watched from somewhere inside the track but NBC had a taped reaction shot of him and should have cut to him before it cut to a contest winner. But Pletcher is a low-key personality, and Fullerton — a short, stout fellow jumping for joy — gave NBC all the emotion you’d expect of someone who had just won $900,000."

What about the IRS? I wish NBC had also had a camera at IRS headquarters; OK, at a Derby party full of the agency's employees. I suspect those folks were almost as thrilled as Fullerton since the day's other big winner was Uncle Sam.

All you tax-wise readers already know that gambling proceeds are taxable.


In this case, Churchill Downs didn't have to withhold federal tax upfront. That's required only when the winnings minus the wager exceed $5,000 AND the winnings are at least 300 times the wager. Fullerton wasn't that lucky!


But I suspect tracks, casinos and other such venues offer the withholding option to big winners.


Regardless, there's no way, thanks to all the publicity, that Fullerton could try to pull a Richard Hatch and not give the IRS its due.

I wish, though, that NBC, which spent most of the hours leading up to post time on a variety of canned features only tangentially related to the horse race itself, had opted to have a CNBC talking head on hand after the race.


That business channel commentator then could have told viewers, or interviewed a tax expert about, the tax implications of the big winnings.

And now you know why I'm not a television programmer!

What about the amount bet? The discussion also could have covered just how the $100,000 that Fullerton bet on the race figures into things.

The of contest material says the Derby Dream Bet winner gets, among other things, "A free $100,000 win wager on a horse in the 136th Kentucky Derby."

Does that amount also count as income for Fullerton? Could the tax man argue that Fullerton constructively received it? Or did he not ever have any type of ownership of the money that he bet on Super Saver?

Should it be included for tax purposes as part of the prize package's overall value?


And speaking of that, there's no question that Fullerton will owe tax on the value of the trip to and lodging and amenities in Louisville that were part of his grand prize.

OK, tax geeks, your thoughts, please, on Fullerton's ultimate Kentucky Derby tax liability.

TP OR TD need not apply.

[Gregg]

The first $100K is taxable, any winnings are taxable, the trip and expenses associated with it are legitimate business expense, if he claimed it as income he could also deduct it, as NBC required him to go in order to participate.

[BBFlatt]

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?

[The Operative]

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.