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Chapter 15. Scams > Phony Prizes

Phony Prizes

Phony prize scams are abundant. According to the National Consumers League’s National Fraud Information Center (www.nclnet.org), they represent one of the three most common telemarketing frauds perpetrated against older Americans. Sometimes the scam involves your being required to buy something to get your prize. Usually what you buy is extremely overpriced. Other times you are told that to claim your fabulous prize, you must first pay the income tax on the prize to the company. Wrong! Prizes are indeed generally subject to income taxes. However, you would pay taxes directly to the IRS through an estimated tax payment or the taxes would be deducted from the prize itself. In either case, you should receive a Form 1099 from the company giving you the prize. The form would state the value of the prize and the amount to be reported on your income tax return. Under no circumstances should you be required to make a tax payment to the company providing the prize.


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