Your client, Sam Jackson, is an avid Boston Red Sox fan. Last April at the Red Sox first game, as a result of a random drawing of those in attendance at the game, Sam won 300 Dunk My DoNut coupons. Each coupon entitled him to a cup of coffee and a free doughnut or a dozen doughnut holes. Sam used some of the coupons (approximately 33), but he found that eating so many doughnuts directly conflicted with his goal of losing weight. The unused coupons expired on December 31, 2017. Thus, Sam was surprised when he received a Form 1099 in January 2018 that valued his prize at $1,100. Sam would like to know whether the value of the doughnut coupons should be included in income and asks you to research his question. If you conclude that their value should be included in income, Sam also would like to know if he can reduce his gross income by including in income only the value of the coupons that he used. He has the unused coupons as documentation that neither he nor anyone else used them. Partial list of research aids: § 61 § 74 Court case cited as: 47 AFTR 162.
Please refer to specific tax code (section), rev-rul, and court cases to support answer. I am looking for a quality solution, not just a guess. Thank you.