Lie #1. If I win the lottery, my financial problems will be over!

In our book The Frugal Prosumer Philosophy in the chapter Myths & Deceptions That Can Ruin You we say:
Lie #1. If I win the lottery, my financial problems will be over!
Truth: Most families will earn one million or more in their lifetime. (45 years of work means your family has to earn only $22,000 per year to earn a million). Therefore you’ve already “won a million dollar lottery” and are getting the payouts. Unless you have a plan and good record keeping, you’ll waste the money away, like most lottery winners do. Most people will have nothing or very little to show for that million. My statement to you is: “If you can’t hang on to the current million you are getting, if you win the lottery, you’ll likely lose that money too.”
If, by some itty-bitty chance, you win an actual million dollar lottery, it will not make you a millionaire. Read on. A million dollar win is usually paid out over 20 to 25 years. After taxes that comes to around $35,000 a year. You're a thousandaire -- not a millionaire. Yes a nice amount, but if you think you are a millionaire and you spend like one, you’re going to become poor very fast. The chances of winning are almost zero and the money would be much better invested in other ways.

What about game show winnings?

Contestant often can choose to receive the prize in the form of a financial annuity paid out over forty years, or they could choose to receive the present cash value of that annuity. If a winner took the prize annually, it would pay about $25,000 for 40 years, but if he wanted his winnings in a lump sum, it would only yield $450,426, or about $375,000 after taxes. That's about one-third of the promised million bucks.

If they don't pay it the contestants can't claim ignorance. The tax information is in the fine print of the contract they sign when they first appear on the show.

You will receive a "1099" in whichever year you actually receive your cash. You will receive a "1099" for both your cash and prize(s) at the same time, regardless of when you take receipt of cash." So if you get a vacation that's valued at $10,000, you have to pay tax as if you got a check for $10,000.

The issue is compounded by the fact that many prizes' value are named at best-case rates. Lots of times, the hotel packages named on the big shows can be purchased online or through a travel agent for much less than the price named on TV. Vehicles, too, are usually listed with their sticker price, and not for their actual market value. Winning a car and being required to pay $7,000 in taxes is still much better than buying one yourself for $27,000, but highest-case pricing increases the tax burden.Because of the way the hotel package ends up as a prize -- it's sometimes given to the show in exchange for promotion -- the dollar value is inflated to give both the show and the donor the sheen of maximum value.

I have personally know a person who won items in a game show but a couldn't keep them because they didn't have money to pay the estimated taxes up front.

You also have state taxes to contend with. Most game shows are shot in California, which means California tax rules apply.

The Internal Revenue Code's Section 74 states that if you get something as a prize or an award, you have to consider it part of your gross income.