Oscar swag bags loaded with taxable goodies

Even if you never watch Hollywood’s seemingly endless lineup of awards shows, you’re probably aware that the celebrities who appear on those programs are thanked with gift bags loaded with expensive items. Until a few years ago, the recipients assumed that, because the term gift was used, all that loot was free. Then the Internal Revenue Service stepped in to disagree.

The IRS ruled that, even though the items were called gifts, they are taxable because businesses that donate the lucrative items are then able to deduct them as business expenses and still get enormous publicity. Plus, the gift bags are generally given away with strings attached – the celebrities often must make an appearance, serve as presenters, or participate in some way.
 
Therefore, the IRS says, the gift bags represent compensation. The tax agency also points out that there are dozens of awards shows each year, so a sought-after celebrity could easily rack up a small fortune in freebies.
 
In 2006, the IRS and representatives of the Academy of Motion Picture Arts and Sciences came together and reached an agreement that satisfied both parties. 
 
"We appreciate the Academy’s leadership on this issue," said Mark Everson, who was the IRS commissioner at the time. "The gift basket industry has exploded, and it’s important that the groups running these events keep in mind the tax consequences."
 
Since the 2006 agreement, the IRS has focused on two main areas when it comes to gift bags and other promotional items for celebrities:
  • Reporting compliance by the stars and other gift bag recipients
  • Completion of Form 1099 as appropriate by those providing the items to the stars and other recipients
 
The taxability of the gifts doesn’t seem to have had much effect on what is in the swag bags. At this year’s Oscars event, non-winning celebrities as well as the two hosts, Alec Baldwin and Steve Martin, were offered gift bags worth a whopping $91,000, according to a report by the Toronto Sun. Here’s a look at what was inside:
  • Tickets for an African safari for up to eight adults and eight children worth $45,000, complete with a personal chef at the Lion Sands Game Preserve in South Africa
  • $14,500-stay at the Monte Carlo Beach Hotel in Monaco
  • Trip to the Winvian Luxury Hotel in Connecticut worth $17,000
  • Virgin Atlantic gold cards, which provide access to world-class lounges, priority check-in, upgrades, and limousine service
  • Limited edition Swiss Army leather suitcases valued at $4,000
  • One-week fitness boot camp worth $4,850, Slimware portion-control plates, and 10 personal training sessions
  • $500 La Peau Couture anti-wrinkle face cream
  • Tiffany crystal-studded cat collars
  • FlipCam for cats and, for dog owners, a voucher for a session at a professional dog photo studio
  • Various high-end hair and skin care products, one-year supply of Altoids, pig board game, Zen CDs, personal security alarm, certificate for an indoor skydiving experience, voucher for a $1,600 Serta mattress, and a carbon-free personal shredder
 
Now that the gifts are considered taxable income, media reports indicate that many celebrities have stopped accepting the bags and, instead, donate them to charity.

Related articles:

 

You may like these other stories...

Ernst & Young 2013 audit deficiency rate 49%, regulators sayMichael Rapoport of the Wall Street Journal reported on Thursday that the Public Company Accounting Oversight Board (PCAOB) found deficiencies in 28 of the...
Some of your clients may get away to business conventions from time to time. It gives them a chance to rub shoulders with colleagues, catch up on the latest developments, and fine-tune their skills. And, when the meetings or...
PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.