Celebrities Treasures Tarnished: IRS Taxes Gifts & Goodie Bags
What’s in your goodie bag?
The new Sierra Leone Fund, launched on September 10th in Washington, DC with a gala celebrity fundraiser. Their goodie bags for folks like Angelina Jolie, Kanye West, and Isaiah Washington, included t-shirts, sarongs and other clothing items to jewelry, high-tech gifts, accessories and more.
The Minisceongo Golf Club in Pomona, New York hosted their Celebrity Golf Outing on August 28th. Their goodie bags were full of golf balls, clubs, carts, clothing, watches, health products and ... for celebrities like Shaquille O’Neil, Justin Timberlake, Steve Harvey, Scottie Pippen, Carl Banks, Busta Rhymes, Lennox Lewis, and many more.
These gifts are going to people who have very deep pockets. Can you just imagine how easily those pockets could be tapped if taxes were assessed on all that booty? So, you can see why the IRS wants a piece of the treasure. The country’s tax collector, who is always looking for ways to collect tax revenues with the least amount of fuss, has hit the jackpot.
But aren’t these gifts? Your first impulse might be to stutter angrily, "b-b-b-but these aren’t income." They are gifts. The major hotels, designers and manufacturers give the celebrities these presents to pay homage to their greatness and popularity. Don’t they?
Not at these prices! Those donors do this strictly for the public relations value. They want the public to see their names associated with top celebrities so they can position their products at top prices – and to generate visibility and sales. This is strictly business. According to IRS Commissioner Mark W. Everson, “The gift basket industry has exploded, and it’s important that the groups running these events keep in mind the tax consequences.”
The first major organization with whom the IRS has entered into an agreement is the Academy of Motion Picture Arts and Sciences. In fact, the value of this year’s goodies were so high that the Academy itself voluntarily approached the IRS shortly after this year’s awards presentations seeking to clarify the tax issues surrounding the gift baskets, as well as to ensure that any obligations for the prior years were met.
Do the stars have any alternative to paying the tax? Well, according to Bruce Friedland, an IRS Spokesperson, the celebrities may donate the gifts they received to a qualified charitable organization. If they do, the celebrity may be able to take a tax deduction for his or her charitable contribution, subject to the usual applicable limitations and requirements.
What’s Taxable and For How Much?
Pretty much anything you get is taxable – except the meal, of course - including things in your goodie bags; items you pick up at a free shopping table or room offered to guests; gift certificates or vouchers.
Oh, and don’t forget those gowns – celebrities get to keep the gowns they wear. Just think of Hilary Swank in her chocolate brown Calvin tank gown at the Golden Globes. Many outfits have high five-figure values. Those are taxable, too – as is the money the designer labels pay the celebrities to wear their gowns.
What’t the taxable value of these ‘gifts’? Friedland explains that, in general, you have received taxable income equal to the fair market value of the bag and its contents. So, you’re expected to report that amount on your federal income tax return.
There’s no mention of the reporting the fair market rental value of things loaned to celebrities for major events. Have you seen the jewelry flowing up that red carpet at the Oscars, Emmys and Golden Globes? Millions of dollars worth. When asked about reporting this, the IRS had no comment.
Does this arrangement only to apply to celebrities? Hardly. After all, sensible charity fundraiser organizers will do their best to attract wealthy donors by finding the best, most appealing and most expensive gifts they can find. While some donors really enjoying exploring the treasures they receive, others often leave them behind, indifferently. Or they just hand the bag to a friend or assistant. The same rules apply to volunteers who help themselves to the bounty.
Beware! The IRS is now notifying entertainment and charitable organizations that they must issue appropriate 1099-MISC forms at the end of each year to each celebrity or recipient of these expensive sets of gifts. So, if you’re one of those people who generally disregard the gifts, be sure to return the package to the organizer and get some written proof that you did. In fact, under the circumstances, it may be wise for the charity to include a slip of paper for the recipient to sign if they wish to return the gifts to the charity.
You can always do something like the folks do at Andre Agassi’s 11th Annual Grand Slam for Children Event Celebrity in Las Vegas. His celebrities will autograph the bags. The autographed gift bags and all contents will be auctioned on Charityfolks.com, with proceeds going to the Andre Agassi Charitable Foundation.
Eva Rosenberg is the founder of TaxMama.com and an enrolled agent licensed to represent taxpayers before the IRS. She is the author of the book, Small Business Taxes Made Easy http://www.amazon.com/exec/obidos/tg/detail/-/0071441689/mywishlistA , declared to be one of the best tax books of 2005 by Entrepreneur Magazine (Dec. 2005).
© Eva Rosenberg, 2006, originally published in MarketWatch.com