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.