It would be very rare for an audit to go back 18 years ago. If by the slim chance they did, you would pay tax on the $1500 plus interest and penalty.  If you had losses against that $1500, you can subtract them from the amount received.  That would be tough to prove unless you kept a loss and win sheet from that many years ago.

My guess is this will not be an issue.  Don't bring it up at your audit unless they actually do.

I should clarify, since I know there is a 6 year statute of limitation.

In this case, it was during a year when my husband did not have to file a return from working and the lottery winning was overlooked. I dont believe there is a statute for missed returns.

It is very doubtful his winnings from 2002 are going to come up.  Generally, the IRS can include returns filed within the last three years in an audit. If they identify a substantial error, they may add additional years.  As you noted above, they usually don’t go back more than the last six years.    And if that was the only income during the year, it would not be taxable anyway.    You get a standard deduction each year so if there were no other income, the standard deduction was more than $1500 even 18 years ago.    There would be no tax due.   

I would not focus on or be concerned with that income, stay focused on the returns being audited.     

IRS Audits  For more information on what to expect and your rights during an audit, click that link.   From that link:

Selection for an audit does not always suggest there’s a problem. The IRS uses several different methods:

• Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
• Related examinations – we may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

Thank you.

I was wondering if lottery winnings count toward "gross income". And in this case, my husbands gross income was not high enough to require filing taxes. If indeed the lottery winning was part of gross income, than we dont have anything to worry about in regards to this 1500 winning.

Yes, gambling winnings are part of gross income.   So if you did not have income over the filing threshold for that year, you wouldn't have had a filing requirement.