Is the prize reported at fair market value minus the price of the ticket on a 1099? Also, if the prize is a package of items, like a gift basket, could the winner refuse some of the items and not pay taxes on the items refused?
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The prize is reported at fair market value. Issue the 1099MISC to the winner in that amount. It is up to you if you will allow the winner to accept only part of the prize. You can require that the winner accept the entire prize, or if they refuse, you will not award the prize, or will award the prize to an alternate winner. If you choose to allow the winner to accept only part of the prize, then you would issue the 1099MISC for the fair market value of the prize accepted.
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