Gift tax - raffle prize

WA - I recently bought a raffle ticket in which I won a set of his and her watches worth $10,000. These items were donated by a jeweler to a foundation that was holding a charity event. Now the foundation is asking me for 25% taxes to be paid to them. My understanding is that I must also report this item on my own taxes. This seems like I am being double dipped. Any advice?

[abezon]

You aren't being double dipped. You're getting $10,000 worth of watches. You can keep them or sell them, but either way you have to pay taxes on them. *However*, I'm don't think the foundation can make you pay the taxes up front. If you won cash, they might be required to withhold some for taxes. Since there's no way to withhold 25% of a watch, they have no duty to send any money to the IRS. Since they don't have a duty to send money to the IRS, they can't make you pay the income taxes on the watches to them before giving you the watches.

They will be sending you a 1099 for $10,000 that you have to include on your tax return. I strongly suggest you pay a couple jewelers for appraisals on the watches. Just because the alleged "retail value" was $10k doesn't mean you would have had to pay $10k for the watches. Jewelry is always "on sale", meaning it's artificially marked up then discounted to what people will actually pay. If $10k is the marked up price, the actual retail value could be $7,000. You could also argue that their value is whatever you can sell them for. I recently attended a charity auction for Children's Hospital Foundation in Seattle & saw jewelry with a "retail value" of $5,000 selling for less than $2,000. And that's from people who wanted to overbid because it was for charity. If you report less than the 1099 amount, you'll have to include copies of the appraisals to explain the variance.

You didn't mention the name of the charity, but I wonder about a charity that wants you to give them money for taxes. How do you know they'll send that money to the IRS? Are you sure they are a legitimate 501(c)(3) entity? The scenario you describe is sending off warning bells in my head. Either this 'charity' is a scam, or they don't know what the heck they're doing. Either way, do not send them money.

Thank you very much. Interestingly enough the charity (Cystic Fibrosis Foundation) is run out of the Children's Hospital Seattle. I will definately follow your advice though I don't think they are out to scam me as they are a legitimate foundation.

[abezon]

OK, so it's not larceny; it's silliness. Call the CH Foundation in Seattle & ask to speak to the Director who deals with that guild/foundation. I know if you had dealt with CH Foundation directly they would *not* have asked you to pay them directly for the taxes on the watches. They'd just warn you that you're gonna have to pay the taxes in the spring when you file. Chances are the Director can phone the cystic fibrosis foundation people & explain the tax laws to them & straighten everything out. Be nice to the CH director -- they're having LOTS of events & year-end stuff and are very busy. And do get those appraisals of fair market value when you get the watches. I take it the watches are Rolex or Cartier or have lots of diamonds?