[tangaroo]

I recently won a large cash raffle. Of course, I want to get the taxes paid now to avoid any penalties for underpayment. Here are the details:

It was a 50/50 raffle, cash prize was declared to be $15,000
The organization is a tax-exempt entity.
They hold a similar raffle 6-8 times per year and has been going on for many years.
The person presenting me my check asked for my name, SS#, and address.
I was given a check for $15,000... no taxes of any kind were withheld.
I was warned to expect a 1099 in January.

Now, from what I read about cash raffle winnings, the organization is REQUIRED to withhold taxes at 25% whenever the winnings are greater than $5,000. See IRS Pub. 3079 and Notice 1340. In fact, it says that under this scenario, the organization must send the 25% tax to the IRS regardless of whether they withheld it from the proceeds. If it doesn't withhold as it is supposed, the organization "will be liable for the tax."

I've asked numerous sources, all of whom say that even if the organization made a mistake by not withholding, I still owe the tax. Yet, this seems contrary to what the IRS publications say. I understand the concept of "You won the prize, you owe the tax." But... no one has been able to explain what the IRS means when they say that the organization becomes liable for the tax if they do not withhold it from the proceeds, and that they must pay it even if they don't withhold it. If it doesn't mean what it says, then OK, I'll just accept it and send in my estimated payment. However, if the organization just put themselves on the hook for it because they failed to withhold (and as the rules seem to indicate), then I want to pursue that.

Even an accountant I discussed it with told me that he was aware of this organization, and though it is a benevolent one, they do not always follow the "rules" for their raffles... out of careless, not through intent. He says "just pay the tax". Yet, since he was unaware of the publications I quote above, I have a hard time following his advice.

Should I just give up and pay the estimated taxes now? Should I wait until I get a tax form in January? I probably would not owe a penalty if I don't pay anything till then. Or, should I pursue making them accept responsibility for the tax, if in fact it IS their resposibility... and if so, what steps would I take to ensure this gets done?

[AtlantaTaxExpert]

If you believe that your current federal taxes withholdings from your day job will not cover the taxes on this $15K, then, yes, pay the estimated taxes.

The charity organization may be subject to a fine from the IRS for not "following the rules" (if YOU report tem), but it will not affect your tax liability. You will OWE the tax regardless; that cannot be avoided.