Look, I’m not much of a businessman. As a kid, my lemonade stand was shut down for egregious environmental violations. In high school, I was removed as Treasurer of the senior class after I got bilked out of our prom fund by the deposed Prince of Nigeria. And as an adult, my great American novel about a futuristic theme park where dinosaurs are brought to live though advanced cloning techniques infringed upon numerous copyrights.
But even I’m not dumb enough to bet $420,000 on Eli Manning. Not this year.
That’s essentially what the good people at Jet Chevrolet, a local car dealership in Washington State, did last weekend by promising to give away $420,000 in cash if the hometown Seattle Seahawks shut out the impotent NY Giants. And as Gregg Easterbrook would write in the most insufferable way possible, “Verily, it came to pass” as the Seahawks blanked the Giants 23-0 courtesy of yet another abysmal Manning performance.
The contest worked like so: if you cruised through the dealership just to snag some free Krispy Kremes, you were entitled to one entry. If you actually bucked up and bought a car, you received 100 entries. If the Seahawks could hold the Giants scoreless on Sunday, 12 entries would be pulled and each of the dozen winners would receive $35,000. So here we are.
Seeing as though I’m a tax guy, you’ve probably guessed where this is heading. If you are one of the lucky winners, how much of the $35,000 are you walking away with?
You might think that because you didn’t actually earn the cash – rather, you were merely selected at random – the winnings wouldn’t be subject to income tax. But as usual, you’d be wrong.
Section 74 of the Code provides that in general, prizes and awards are included in taxable income. There’s really only one exception: you can exclude such prizes and awards if they are made “primarily in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement.” But even then, in order to exclude the prize or award, there are three additional requirements:
You must have been selected without any action on your part to enter the contest or proceeding;
You can’t be required to render any future services as a condition to receiving the prize or award; and
The prize or award must be transferred by the payor to a governmental unit or a charitable organization.
If you’re wondering who meets these lofty standards for exclusion, think of a Nobel Prize winner. They’re selected by the Nobel Committee for their achievements and through no effort of their own, and they are not required to provide any services in order to receive the prize. Provided the winner instructs the committee to contribute the prize purse to Our Lady of the Worthless Miracle, the cash is excluded from his or her taxable income.
Of course, winning the Nobel Peace Prize is a far cry from pulling in $35K because you drove off in a shiny new Volt. So for the dozen victors of the Chevy giveaway, they will be paying tax at a marginal rate ranging from 10% to 39.6%. To soften the blow come April, the dealership will likely withhold 25% upon payment, leaving the lucky winners with $26,250 after tax.
Just in case any of the dozen winners find their newfound winnings burning a hole in their pocket, it should be noted that the Giants are 10 point underdogs this week at Detroit. Manning’s got to be due, right?*
*That’s not how gambling works. Manning is not due.