Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-40

1967-1 C.B. 19

Sec. 74

IRS Headnote

The television set an individual taxpayer was permitted to purchase for a nominal price, as a result of winning a contest, is a prize within the meaning of section 74(a) of the Internal Revenue Code of 1954. The amount to be included in the taxpayer's gross income is the difference between the fair market value of the television set and the price he paid.

Full Text

Rev. Rul. 67-40

Advice has been requested whether an individual taxpayer is in the receipt of gross income for Federal income tax purposes under the following circumstances.

The taxpayer removed a coupon from a department store's newspaper advertisement and, in compliance with the instructions in the advertisement, redeemed the coupon at the store for a numbered certificate. The rules of participation were printed on the face of the certificate and provided that if the holder of a certificate matched his certificate number with the number posted on an item of merchandise in the store, the holder was entitled to purchase the item for the price listed on the back of the certificate. The posted numbers were changed daily during the sale. In each case the item price listed on the back of the certificate was a small fraction of its fair market value.

The taxpayer searched the store for the numbered items and discovered that his certificate number matched that posted on a television set. He purchased the set for the price listed on the back of the certificate.

Section 74(a) of the Internal Revenue Code of 1954 provides, in pertinent part, that gross income includes amounts received as prizes and awards.

Section 1.74-1(a)(2) of the Income Tax Regulations provides that if the prize or award is not made in money but is made in goods or services, the fair market value of the goods or services is the amount to be included in gross income.

The difference between the fair market value of the television set and the price the taxpayer paid for it is a prize within the meaning of section 74(a) of the Code and is the amount the taxpayer is required to include in his gross income for Federal income tax purposes.