'Free' doughnuts cost $237

A Houston Astros fan had to pay income tax on a year's supply of doughnuts he won at a ballgame.

By Karen Datko Apr 20, 2011 1:28PM

It doesn't get much better than winning 315 coupons for the local doughnut shop, each good for a free doughnut and coffee.

 

That is, until you have to pay taxes on the prize.

  

This happened to Bob Choate, who won the coupons at a 2010 Houston Astros Fan Appreciation Day. Bottom line: Being the lucky winner reduced his tax refund by $237.

 

"Well, that's about as unpleasant of a surprise as tasting a chocolate creme filling when you were expecting Bavarian," wrote "Rockets Pride" at ClutchFans.

 

Here's how it came to be, according to David Barron of the Houston Chronicle. The story does have a sweet ending.

After Choate won the coupons -- coffee and his choice of a doughnut or a dozen doughnut holes -- for Shipley Do-Nuts, either the Astros or Shipley sent him an IRS Form 1099, which valued the prize at $927.61. Choate countered that the prize was worth less than $600, which would mean no 1099 required. 

 

Doughnut chain owner Lawrence Shipley, apparently a very nice person, agreed to pay Choate $237 to make up for the difference in his refund after the $927.61 value of the prize was added to his taxable income. Choate, in turn, said he'll donate $237 to Shipley's favorite charity. Post continues after this Tax Day video, which explains how your tax dollars are spent:

The Astros gave Choate four tickets to the first home game and a baseball autographed by Jeff Bagwell. (Will he also owe taxes on that? Time to check the gift tax laws.)

 

Choate took away a lesson about sticking to your guns, respectfully. But there is another lesson here, similar to the no-free-lunch maxim. It may not pay to put a prize doughnut in your mouth.

  • You are required to pay income tax on the fair market value of prizes, even those that are worth less than $600.
  • The prize sponsor must report to the Internal Revenue Service all prizes that exceed $600 in value.
  • If you think the prize value listed on the 1099 form is too high, ask that it be amended.
  • You can also decline the prize. "If I had known this was going to cost this much, I wouldn't have accepted. It was pretty poorly handled," Choate told the Chronicle before the matter was resolved. By March, he had used only eight of the coupons and had given a bunch away.

More on MSN Money:

VIDEO ON MSN MONEY

57Comments
Apr 20, 2011 9:43PM
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Never ceases to amaze me just how worthless our government has become

They bail out predatory banks at the tune of billions . . .well actually in the trillions
Give away money to dictatorships in the billions

Congress . . .err  I mean the maggots  in DC  give them selves a pay raise again

They go after some chump over free doughnuts  WTF?
We are not Americans we are citizen slaves

Welcome to AMERIKA
Apr 20, 2011 4:47PM
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no free lunch, unless, your in  congress, the IRS knows not to bite the hand that feeds them
Apr 20, 2011 7:50PM
Apr 20, 2011 5:35PM
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Just Think, GE one of the largest corporation paid no taxes, if fact we gave them billions of dollars of our money, and this poor guy has to pay taxes on donuts
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This is kind of bull****. Everyday I see a commercial "I owed 80,000 to the IRS, I only payed 16,000. I owed 3,000,000 to the IRS, I only payed 1,000,000." Im not sure if any of those statements are true. But why does this poor guy have to pay 200+ bucks for FREE donuts and people can get away with not paying 2,000,000 dollars? I get having to pay 4,000 dollars in taxes on a 22,000 dollar car won from The Price is Right. But having to pay anything for donuts is down right stupid. Go after the people who STEAL 2,000,000 from you, not a guy who won a price that is barely worth 900 bucks.
Apr 20, 2011 8:58PM
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And GE doesn't pay a penny.You gotta love our government.
Apr 20, 2011 5:01PM
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......and now the poor guy will owe taxes this year on the money the donut place gave him to cover the increased taxes.....what is wrong with this picture ?
Apr 20, 2011 5:04PM
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Taxes are a fact a life -- however, this information would have been helpful at the time the prize was given.  A real 'pay it forward' ending though!
Apr 20, 2011 9:46PM
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About enough---simplify the tax code
Apr 20, 2011 9:04PM
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If I buy a GE product do I need to pay taxes on it ........ GE didn't. Its called  reciprocation.
Apr 20, 2011 5:29PM
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Who'd even want a daily donut? You'd gain about 20 pounds in one year.
Apr 20, 2011 10:51PM
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Taxes on free donuts?  Ridiculous... too many taxes!  It won't be long before they're taxing the air we breathe.
Apr 20, 2011 6:28PM
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There should be no taxes on prizes you win.  It's stupid that there is.  If you're not working for that company, there should be no tax.

 

The only exception could be lotteries that are designed to raise tax revenues.

 

But all other prizes should be tax free.  Who came up with the stupid idea to tax them in the first place?   Hey you won a car!  Pay the govt $5000!  Hooray!

Apr 20, 2011 6:57PM
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I won a car years ago..When I went to pick it up..I got hit with a $4000 tax and license bill!

We should know this...but in most cases, they are supposed to alert you to the fact that you, the winner,is liable for all taxes and other fees!
It was a great car ..so I paid it...be careful in those houses that they are raffeling off...you ...will be paying the taxes on the prize!
Apr 20, 2011 9:47PM
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Ben Franklin said that  there are only three things you can count on. 

Old Money, an old dog, and an old wife.

Of course there are four things you can count on; there was no IRS or income taxes in Ben's time.

Apr 20, 2011 5:04PM
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I am taking portraits of assisted Living faciltiy residents as a gift to them.  I am charging them my cost only but they are requiring that I fill out a 1099.  Even though I am basically donating the pictures, now I have to turn that in as income on my taxes as well as having to pay my tax guy extra so fill out the extra paperwork.  I won't do it again if my generosity is punished by having to pay taxes on it.   
Apr 20, 2011 7:49PM
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It hurts when your "not to big to fail", maybe a page out of the GE playbook of tax avoidance could have saved the day here!
Apr 20, 2011 7:04PM
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Sometimes we find a loophole. Apparently this guy couldn't find such for his doughnut hole.
Apr 20, 2011 8:23PM
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two things are certain death and taxes
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