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Ruling 70-556

Rev. Ruling 70-556

Advice has been requested as to whether materials relating to a promotional contest could be associated with packages of cigarettes.

The contest would involve distribution of pieces of a puzzle with packages of cigarettes, with purchase of the cigarettes necessary to obtain these pieces which would be essential to participate in the contest. After all the pieces of the puzzle were assembled the contestant would answer questions relating to the puzzle and send it to an independent judging organization. If the questions were correctly answered the contestant would be awarded a prize.

Although some skill is required in the proposed promotion the contest pieces would be randomly packed in the cigarette packages and there would be no provision for exchange of these pieces. Consequently, the acquiring of all of the necessary game pieces by a potential contestant would involve the element of chance.

Section 5723(c) of the Internal Revenue Code of 1954 reads as follows:

Lottery Features.-No certificate, coupon, or other device purporting to be or to represent a ticket, chance, share, or an interest in, or dependent on, the event of a lottery shall be contained in, attached to, or stamped, marked, written, or printed on any package of tobacco products or cigarette papers or tubes.

Section 5723 of the Internal Revenue Code of 1954 and its predecessor provisions of law adopted the accepted American definition of the term "lottery" which at the time of first inclusion in the taxing statute in 1897 included schemes dependent in whole or in part on chance. Horner v. United States, 147 U.S. 449 (1893); 25 Op. Atty. Gen. 286 (1904). The statute was later judicially construed to include any scheme whereby the possession and enjoyment of a prize is made to depend upon or is aided by lot or chance however compassed. United States v. One Box of Tobacco, 190 Fed. 731 (1911); 25 Op. Atty. Gen. 266 (1904).

A lottery is generally considered to include three elements: consideration, prize, and chance. FCC v. American Broadcasting Co., 347 U.S. 284 (1954). Since all of these elements are present in the proposed promotion it is
held to constitute a lottery, with the materials relating to the contest prohibited by Section 5723(c) of the Code from being associated with packages of tobacco products.

Revenue Ruling 70-14 and 70-389 holding that promotional contests not embracing the element of chance are not lotteries, are distinguished.

26 U.S.C. 5723; 27 CFR 270.211

Last updated: May 2, 2024