Take, for example, a vacation sweepstakes that is giving away a trip to Las Vegas including airfare, hotel, and event tickets that must be taken by the winner within a year of the award date. In this simple vacation prize, you have three variables to estimate for the ARV:
- The cost of the airfare
- Nightly costs for the hotel
- Ticket prices
The price for the event tickets is probably not going to vary too much, and the sponsors can make a reasonable guess about the hotel costs, but the airfare will make it very difficult to come up with an accurate ARV. Not only do airfare rates fluctuate based on the time of the year that the winner decides to fly, but the sponsor won't be able to know in advance where the winner will live. Airfare to Las Vegas from, say, Los Angeles is going to have a much different cost than airfare from Maine or Virginia.
Or imagine that the sponsors are giving away a top of the line computer. When they set up the giveaway, the computer is worth $2,000. But by the time the prize is actually awarded six months later, that same computer is only worth $1,200.
The good news is that the ARV of a sweepstakes prize is basically irrelevant. You only pay taxes on the fair market value at the time you receive the prize or take the trip. So don't rely on the ARV; by taking the time to discover the actual FMV, you can save a lot of money on your taxes. For more information, see How to Dispute the ARV on Your Taxes.