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March 17, 2011


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Gregg Polsky


The gross up payment amount does reflect that the payment itself is taxable. They value the total prize (including the tax payment) at $3,000; $750 reflects the 25% withholding rate on prizes.

The "mitigate" language was used to reflect that, if the winner is subject to a marginal tax rate higher than 25%, the winner would owe additional tax on the prize.


Gregg is correct - Sheen can only guess into which marginal tax rate the ultimate Winner will fall. If the Winner has no other reportable income for the year, the $907.50 mitigation payment would likely be a windfall.

Assuming the marginal rates of 25% (federal) and 5.25% (state) are correct, Sheen could mitigate all the tax affect with an additional $1,301.08 payment, instead of $907.25, thus eliminating the "doom loop."


For any tax rate it can be *eliminated*. The series converges (quite rapidly I might add). See, Zeno's paradox.

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