Your client, John Butler, is an avid Houston Astros fan. Last March at the Astros home opener, as a result of a random drawing of those in attendance at the game, John won 300 Shipley Do-Nut coupons. Each coupon entitled him to a cup of coffee and a free doughnut or a dozen doughnut holes.

John used some of the coupons (approximately 20), but he found that eating so many doughnuts directly conflicted with his goal of losing weight. The unused coupons expired on January 1, 2014. Thus, John was surprised when he received a Form 1099 in February

2014 that valued his prize at $900. John 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, John 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.

You will prepare 3 written responses: a tax file memorandum asking the question,a tax file memorandum with your research and a client letter.