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Warren Buffett Offers $1 Billion For Perfect March Madness Bracket

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It's not every day that Brady gets sent packing, Manning sends potential travelers scrambling to the midwest and a Stanford grad makes news for freaking out on reporter Erin Andrews but that's exactly what happened on Sunday. It was a play-off day to remember and had many already looking forward to the Super Bowl.

Not everybody is thinking about football.

Today, Warren Buffett had tongues wagging about basketball. The billionaire, who ranks 4th on Forbes list of top billionaires, with an estimated worth of $53 billion, wants to make you an offer: he'll give you $1 billion for a perfect March Madness bracket.

Nope, that's not a typo.

Buffett, together with his company, Berkshire Hathaway, are offering $1 billion to any person who can correctly pick the winners of all 63 games in this year's NCAA men's college basketball tournament. Buffett and Berkshire Hathaway are partnering with Quicken Loans, owned by fellow billionaire Cleveland Cavaliers owner Dan Gilbert, to offer the 'Quicken Loans Billion Dollar Bracket.' Gilbert is listed at #384 of Forbes' list of billionaires with an estimated net worth of $3.9 billion.

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It's a pretty safe bet to say that they're good for it.

But are you up for the challenge?

The odds of winning are said to be one in 4,294,967,296. That feels about right, considering that it's all I can do to make it past the first round with my final four teams still intact.

Don't worry if you don't have the chops to pick a perfect bracket. Quicken will still award a whopping $100,000 each to the 20 most accurate "imperfect" brackets for use in buying, refinancing or remodeling a home.

It's enough to make you start reading ESPN every day, right? I have to think they're already salivating at the notion. The network's tweet earlier today about the contest has been retweeted over 38,000 times:

The details are as follows: pick all of the correct winners and win. If there is more than one winner (statistically, that's nearly unfathomable), you'll share the $1 billion prize.

The $1 billion will be paid in 40 annual installments of $25 million. Or if you don't want to wait around that long, you can claim a lump sum payment of just half: $500 million.

There's nothing to it to enter. No fee. In fact, it's so simple, joked Buffett, throwing in a reference to a Geico commercial, "To quote a commercial from one of my companies, I'd dare say it's so easy to enter that even a caveman can do it."

You can enter the contest at any time beginning Monday, March 3rd, 2014 through Wednesday, March 19th, 2014. Brackets will be made available on Selection Sunday, March 16, 2014, and will initially be limited to 10 million entrants, but only one per household. For more information, you can check out the Quicken Loans page on Facebook.

What happens if you actually win the $1 billion? That's more than 68 miles of cash in stacked one dollar bills. Let that sink in for a minute.

And then forget about all of the houses and cars and cool gadgets you'll buy.

Let's focus on the tax consequences (trust me, Mr. Buffett would want you to). You're going to owe some serious cash to Uncle Sam. Assuming you're single (though, with a $1 billion, I'd guess you won't stay single for long), you'll pay about $394,213,920 in federal income taxes on $1 billion ($197,955,348 if you took the lump sum). Keep in mind that while the highest bracket for 2014 (39.6%) kicks in at $406,750, our income tax system is progressive which means that you don't pay a flat rate. Even as a billionaire, you pay the same rate (10%) on the first $9,075 as everybody else and so on.

That calculation includes little to nothing in the way of deductions. I'm going to assume you'll be phased out of most deductions and credits at that point - and really, would you want that to be the time you met the 10% of adjusted gross income (AGI) for your medical expenses deduction?

Would there be any other tax breaks available to the winner? Mr. Buffett is, of course, infamous for touting the inequity of a system where the top income earners tend to pay proportionately less. That doesn't seem to be the case here - not off the bat.

The folks who tend to benefit from our tax system do so because their income is not taxed as ordinary income. It's taxed as something far more advantageous - like capital gains or certain kinds of dividends. That clearly wouldn't be the case here. It's also not wages or interest.

It's not gambling income. Unlike most other office pools, you don't pay to enter, and it isn't a proper lottery, raffle or game of chance. Gambling winnings are fully taxable but casual gamblers do get something of a break: you can report your losses (assuming you itemize) on your Schedule A as a miscellaneous deduction not subject to the 2% AGI limit. You can't report more in losses than you claim in winnings but in this case, I think it's a safe bet to say that losing a billion dollars in gambling would be far more painful than paying taxes for winning a billion dollars. Fortunately, with this contest, no one would be in the position to figure it out.

It's not business income. Well, probably not. There are folks who enter games, contests and sweepstakes for a living (remember that Julianne Moore movie?) but that's some serious dedication to the cause. Assuming that you did enough research and really dedicated yourself to winning, you could possibly treat it as your business (or more likely, a hobby). If you did, you would report your winnings (of course) but could also deduct any reasonable expenses associated with winning. If you classed it simply as a hobby, you would report winnings as "other income" (good ol’ line 21 on your federal form 1040) and claim related deductions against your winnings if you itemize. Those miscellaneous itemized deductions would be limited to those in excess of 2% of your AGI. You can’t carry excess deductions forward or backwards but again, as with potential gambling losses, if your deductions exceed your winnings in this regard, you have bigger things to worry about.

If, however, you can carve out an argument that your work to enter qualified as a business, you would report your winnings - but this time on a Schedule C. You would also claim your related deductions on a Schedule C. In that event, your deductions wouldn’t be limited to a percentage of your AGI. Kind of brilliant if you could pull it off. But don't get too giddy: this one will require some serious dedication and extensive documentation to pull off. And if you try too hard to prove your point - and you're lying - you'll likely get smacked with a pretty serious penalty. So unless you really do the whole contest circuit for a living, skip to the next paragraph.

At the end of the day, this is a contest. It's a great contest with an unbelievable prize. But it's still a contest. If you win a prize in a lucky number drawing or other contest, you must include your winning in your income on form 1040 at line 21. It's "other income." It's a significant amount of "other income" but still other income. There's no offset, no reduction. In fact, there's only one way to avoid reporting this income - and it can be found in the instructions for the form 1040: "if you refuse to accept a prize, do not include its value in your income." But that would be seriously crazy. You should, at the very least, ask your tax professional (or favorite tax blogger) if she - I mean, he or she - wants it.

Bottom line: some or all of that $1 billion will be taxable. But it's still a billion dollars to start with - so complaining about taxes should be done quietly.

It's the ultimate March Madness. The NCAA tourney - which will play second fiddle to the real contest this year - starts March 18.

WATCH: Warren Buffett's Incredibly Pragmatic Reason For Giving

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