Information courtesy of this link ~
http://contests.about.com/od/taxesfinances/ht/FMVvsARV.htmWhen you win a sweepstakes prize, you are only required by the IRS to report the fair market value (FMV), not the sponsor's approximate retail value (ARV); but how do you go about finding out what the FMV is and how do you handle the difference on your taxes? Find out here.
Difficulty: Easy
Time Required: Learning how to dispute an ARV takes about five minutes.
Here's How:
Check the Fair Market Value as Soon as You Receive a Prize
The FMV applies to the time when you take possession of a sweepstakes prize. So, start looking for proof of the prize value as soon as you receive it. If you wait until tax time, it's going to be difficult to find out exactly how much that computer or refrigerator was worth months before.
If the sweepstakes prize was a vacation, ask travel agents and online websites for quotes for the exact days when you will be flying, and the hotel where you will be staying. Keep receipts for actual expenses on the trip whenever possible.
Compare the FMV with the ARV
If the FMV you discover is similar to the ARV, you can skip down to step 5.
If the ARV is High, contact the sweepstakes sponsor.
If your FMV is significantly lower than the published ARV, contact the sweepstakes sponsor and politely ask them if they can lower the value when they send out their 1099 forms at the end of the year. Many sponsors will do this automatically. In the case of a vacation prize, ask the sponsors to substantiate the prices. Often times, they will receive discounted vacation packages, which can lower the FMV even farther than you expect.
Ask for the IRS' Assistance
If the sponsor can't or won't lower the value on the 1099 forms, don't worry. You can address the matter with the IRS directly. Call the IRS at (800) 829-1040 and ask them to send a "Form 4598, Form 1099 Not Received or Incorrect" to the sponsor. This step is not absolutely necessary, but it reinforces your claim that the prize was incorrectly valued if the IRS wonders why the amount has been changed on your tax return.
Check the Value on the 1099's
Whether the sponsor has agreed to change the ARV or not, check the prize value when you receive your 1099 forms. It's easy for the sponsor to make a simple mistake.
If you do not receive a 1099 from the sweepstakes sponsor, don't think that you won't have to pay your taxes. You are liable whether the sponsor sends the proper forms or not. Read the IRS guidelines on what to do about missing 1099s.
Enter the FMV on Your Tax Forms
Even if it varies from the value on the 1099 form, enter the FMV under 'Other Income' on your 1040 form. Read "How to Pay Your Sweepstakes Taxes" for more information on how to do this.
How to Adjust the Prize Value on Your Tax Forms
In order to show the proper amount on your tax forms, submit the difference between the reported ARV and your FMV as a negative amount. List it under Other Miscellaneous Income with the description "Prize FMV Adjustment".
Keep Your Documentation
Make sure to keep your documentation of the fair market value of your prize wins. The IRS may well question why your valuation of the prize varies from the sponsor's, and you want to have solid proof to back up your claim. If you do not have any solid proof of the correct FMV, then you have to go with the amount listed on the 1099 form.
Tips:
Hang on to your records that prove the FMV you are using on your tax returns for at least three years; that is how long the IRS usually has to audit you under normal circumstances.
Never be rude or upset with a sponsor if they won't change their ARV on the 1099 forms. Thank them for providing the prize, and address the situation with the IRS directly.
Note that you shouldn't just put down the value you believe is correct on your IRS forms. Make sure you file the proper paperwork to show you are disputing the ARV on your tax forms if the sponsor doesn't change the amount.
What You Need:
Records of Your Prize Wins
Proof of the FMV of Your Wins
