26 U.S.C. § 74: Prizes and awards

Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards. the recipient was selected without any action on his part to enter the contest or proceeding; the recipient is not required to render substantial future services as a condition to receiving the prize or award; and the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient. Gross income shall not include the value of an employee achievement award (as defined in section 274(j)) received by the taxpayer if the cost to the employer of the employee achievement award does not exceed the amount allowable as a deduction to the employer for the cost of the employee achievement award. an amount equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award), or the amount by which the value of the award exceeds the amount allowable as a deduction to the employer. In the case of an employer exempt from taxation under this subtitle, any reference in this subsection to the amount allowable as a deduction to the employer shall be treated as a reference to the amount which would be allowable as a deduction to the employer if the employer were not exempt from taxation under this subtitle. For provisions excluding certain de minimis fringes from gross income, see section 132(e). Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games. Paragraph (1) shall not apply to any taxpayer for any taxable year if the adjusted gross income (determined without regard to this subsection) of such taxpayer for such taxable year exceeds $1,000,000 (half of such amount in the case of a married individual filing a separate return). For purposes of sections 85(c), 86, 135, 137, 219, 221, and 469, adjusted gross income shall be determined after the application of paragraph (1) and before the application of subparagraph (A). Except as provided in paragraph (2), the amendments made by this section [amending this section and sections 86, 135, 137, 170, 172, 219, 221, 222, 246, 469, 613, and 613A of this title and repealing section 199 of this title ] shall apply to taxable years beginning after December 31, 2017 . The amendments made by this section shall not apply to a qualified payment received by a taxpayer from a specified agricultural or horticultural cooperative in a taxable year of the taxpayer beginning after December 31, 2017 , which is attributable to qualified production activities income with respect to which a deduction is allowable to the cooperative under section 199 of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) for a taxable year of the cooperative beginning before January 1, 2018 . Any term used in this subparagraph which is also used in section 199 of such Code (as so in effect) shall have the same meaning as when used in such section. No deduction shall be allowed under section 199A of such Code for any qualified payment to which subparagraph (A) applies.”