Celebrities who receive over-the-top thank you gifts may start thinking twice before throwing them into the limo and taking them home.
The Internal Revenue Service (IRS) has its eye on the loot. Celebs will be required to pay taxes on the gift bags they receive at award shows. And when gifts can amount to $100,000 per person, that's a big tax bill.
The IRS announced “an outreach campaign” with the entertainment industry on Thursday, the same day it reached an agreement with the Academy of Motion Picture Arts and Sciences, which gives out the Oscars every year.
The IRS believes that award show gifts and other giveaways are taxable income because the gifts are not given “solely out of affection, respect or similar impulses." Marketers hope their lavish gifts will give their products star power.
The Academy worked out an agreement with the IRS to pay taxes due on gift bags given through last year. This year's gifts, handed out in March, will end up costing the stars who accepted them.
Academy President Sid Ganis said in a statement, “The contents of the baskets, however much we may have been inclined to view them as mannerly thank-yous, in fact constitute taxable income. And since we didn't want any of our presenters to get hit retroactively for a gift we had given them, we asked the Service if there was a way for us to take on the tax obligations and they were very willing to work with us.” In April the Academy decided to stop giving the gift bags.
“There's no special red-carpet tax loophole for the stars,” IRS Commissioner Mark Everson said Thursday. “Whether you're popping the popcorn, sitting in the audience or starring on the big screen, you need to respect the law and pay your taxes.”
Paul Caron, a tax law professor at the University of Cincinnati law school and creator of the blog TaxProf, tells TMZ that the IRS is getting tough on prize winners–think of the Pontiac G6 winners on "Oprah" and some of the families of “Extreme Makeover: Home Edition.”
Geoge Clooney donated his Oscar gifts, which included a BlackBerry, iPod, jewels, clothing and six nights at a Marriott Hotel in Hawaii. He raised more than $45,000 for the United Way's Hurricane Response and Relief Recovery Fund.
Karen Wood, president of Backstage Creations, an entertainment marketing firm, said she expects the only possible impact the new IRS scrutiny will have is to force more celebrities to give away those freebies to charity, CNNMoney.com reported.
"It's a win-win situation since there are celebrities associated with the products and yet there isn't a tax liability for the celebrity and it helps to raise money for worthy causes," Wood said. Not only that, but the celebrities may be eligible for a tax deduction.