Free Play instead of Cash

The determining factor is whether you risked money in order to win the prize. Drawings are treated as an event where you did not risk money to win. Therefore, the prizes are handled differently than with hitting a jackpot on a machine, which generates a W2G. With drawings, a cumulative total win of more than $600 in a calendar year (even if you won a couple of smaller prizes, they're added together) will generate a 1099. For some reason (I'm not sure why), casinos are allowed to give free play, which does not require a 1099, instead of cash.

Well then give me the free play!!!!!!

No, I'm not arguing that it's in any way similar to a 1031 transaction. I'm arguing that the FMV of the FSP is not economically similar to $10k in cash, as you're required to play it through a game designed to hold a portion of it. Bottom line is that it could be argued in tax court, as the IRS has not directly addressed this.

Now, realistically, the $10,000 FSP is not reportable, and the IRS does not know you were awarded it. However, lets assume you play the $10k through, cash out $8k and stick it in the bank. If you get a full audit from the IRS, they're going to want to know what that $8k is and include it as gambling winnings.

Prefect, it is black letter law that all income oriented transactions (i.e. transactions oriented toward increasing one's net worth) fall under the IRC, no matter whether cash is received. The EXCEPTIONS to this are few and far between, with like kind exchanges being one of a few.

Undoubtably, entering a slot tournament for the purpose of winning FSP is an attempt to produce income. The issue would be whether the process is complete at the end of the tournament, i.e. whether that process is separate from the USE (or sale) of the FSP. To suggest that the tournament is not reportable as a completed transaction is, well, speculative, AT BEST. (Consider the possibility that the FSP could be used the NEXT year).

In my experience, the best course is to err in their favor. In this case, one should report the $10K win when it occurs and the $2K loss when it occurs. Only rarely will the taxpayer be whipsawed by this approach. And never will he be penalized.

And as a CPA of 22+ years, 7 of which have been in the gaming industry, I would highly recommend against that course of action.


FSP has no economic value until played. It cannot be cashed out, bartered, sold, given away, etc. No income is received until it has been played, regardless of what year it's played. And if the FSP is not used in a time frame specified by the casino, it may be forfeited. No income. This is why the IRS does not require casinos to report these transactions as taxable income on 1099's.


Look at it like this. It's merely a "chance" to win money. If you were to win $10k in FSP in a slot tournament, and decided to play it all on one spin on a $10,000 slot machine, your taxable winnings would be whatever that spin produced. If you won nothing, then nothing is reportable because you gambled nothing of economic value. If you win $20,000, that becomes reportable on a W-2g because economic value has been attained.


It's not the same as a car or any other asset, because a car does have economic value the second it's won. It can be sold, traded, etc. And if the 1099 received on the car does not represent the actual FMV of the car (say it's been sitting on the floor for years before being won), you have a position using Lawrence W. McCoy., 38 TC 841.


But I'm bored with arguing the same point over and over - end of the discussion for me.

(Edited for clarity)

Botttom line for me if the casino doesnt report, I am not either. Our government are the dishonest ones, not us gamblers, we all will lose in the long run.

Says who?? You're resting your argument on your own imaginary characteristic of the prize. Who says the tournament player was not HIRED to play the tournament to win the FSP for someone else?

Suppose a taxpayer is awarded a vacation (or some other gift certificate) on a game show. Does the taxpayer have taxable income? If so, what YEAR is the income reportable?

Suppose an independent contractor performs work for a client and is compensated IN KIND, i.e. keeps part of the product, e.g. a narcotics dealer. Does the contractor have taxable income? If so, what YEAR is the income reportable?

[If your answers refer to forms such as 1099 or W2-G, your grade is F-, because such answers merely pass the buck.]

Because FSP awarded in these types of promotions is generally classified as NCEP-In, in casino jargon, and is regulated by Gaming. It's not an "imaginary characteristic".

However, I'll be sure to notify each and every casino in the country as well as the IRS that they're all doing it wrong. After all, you have spoken. I'm sure you include on your tax return any loose change you find laying on the sidewalk as well.

Geez, that's it for me. Can you please include me on your all-inclusive "Ignore everyone" list now? I feel like I'm talking to a wall.

Filing a Form 1040 is the TAXPAYER'S responsibility, not the casinos', nor the IRS's. The issue here relates to the Form 1040. So if someone is "doing it wrong," it's not the casinos, nor the IRS.

In my experience, as long as the total taxable income over time is the same, between two possible approaches, it's best to interpret any uncertainty in favor of the govt. (The demise of Arthur Andersen being the best example of this point.)

One question - why does the IRS require that 1099's be filed for a $10k cash prize, but not a $10k FSP prize, if they're the same economic transaction?

I'm beginning to see why you tick so many people off. You're not really wanting to help anyone, you just want to argue with them by using rudimentary knowledge of the subject.


Joe from Ohio: Hi everyone, I just won a jackpot. Where do I report it my return?

MM: That depends. Are you a resident of a eastern European country in the process of negotiating a tax treaty with the IRS?

Joe from Ohio: Umm, no. I'm from Ohio.

MM: And you haven't even mentioned whether you were playing on behalf of a Russian mobster that's listed in the Black Book. How do we know he's not financed by a drug cartel in Medellin, currently on the list of terrorists? I'd be getting ahold of the State department pronto, if I were you.

Joe from Ohio: Umm, is there anyone else I can talk to?