@Raw_Dawg This all depends on how the actual code redeems. If it is a one time code that bumps the account expiration to 40 years out from the day of activation, it would be considered a lumpsum prize, and would most likely be the case from an IT perspective, and less accounting paper work for Microsoft to be "once and done" with it. If they required a yearly code redemption across 40 years, then yes it would be taxed each year.
As for the monetary value, prize redemption items are calculated at their current market value per the time of acquisition. This is to avoid liabilities as you stated where a company goes out of business or terminates the service or even market swing. Unfortunately the term "life-time" only refers to life of the service/business or duration they are willing to adhere to.
Here's the IRS takeaway incase anyone is interested,
Non-cash prizes are subject to regular withholding as well—though the process is more complex. There are two options. The first is a tough sell for prizewinners because it asks them to pay the withholding tax to the organization. They would pay 24 percent of the fair market value of the prize after subtracting the ticket cost. The second option keeps the winner happy but costs the organization more. The organization pays the withholding tax on the winner’s behalf, but at a higher rate of 31.58 percent. The higher rate reflects that the winner acquired not only the prize, but also the value of having the organization pay the tax on it.
If Microsoft paid the withholding at the higher rate, they winner could've received the payout without having to claim taxes since taxes were already paid.
Comments 2
Re: Xbox Fan Wins 'Game Pass For Life', But Shockingly Declines The Prize
@Raw_Dawg
This all depends on how the actual code redeems. If it is a one time code that bumps the account expiration to 40 years out from the day of activation, it would be considered a lumpsum prize, and would most likely be the case from an IT perspective, and less accounting paper work for Microsoft to be "once and done" with it. If they required a yearly code redemption across 40 years, then yes it would be taxed each year.
As for the monetary value, prize redemption items are calculated at their current market value per the time of acquisition. This is to avoid liabilities as you stated where a company goes out of business or terminates the service or even market swing. Unfortunately the term "life-time" only refers to life of the service/business or duration they are willing to adhere to.
Re: Xbox Fan Wins 'Game Pass For Life', But Shockingly Declines The Prize
Here's the IRS takeaway incase anyone is interested,
Non-cash prizes are subject to regular withholding as well—though the process is more complex. There are two options. The first is a tough sell for prizewinners because it asks them to pay the withholding tax to the organization. They would pay 24 percent of the fair market value of the prize after subtracting the ticket cost. The second option keeps the winner happy but costs the organization more. The organization pays the withholding tax on the winner’s behalf, but at a higher rate of 31.58 percent. The higher rate reflects that the winner acquired not only the prize, but also the value of having the organization pay the tax on it.
If Microsoft paid the withholding at the higher rate, they winner could've received the payout without having to claim taxes since taxes were already paid.