The Internal Revenue Service is once again singing "Hurray for Hollywood."
It's Academy Awards weekend, meaning stars will descend on Los Angeles. They'll receive swag bags for their participation in the Oscars ceremony.
And the IRS will once again get a cut of the loot.
The issue of whether the goody bags were gifts or remuneration for being part of the Oscars award presentation came to a head in 2006. That year, the IRS and the Academy of Motion Picture Arts and Sciences notified stars that the value of the items in the bags must be reported as ordinary income.
"As the world watches the glamour and glitz of the Academy Awards, it's important to keep in mind that movie stars face the same tax obligations as ordinary Americans," said then-IRS Commissioner Mark W. Everson.
Getting an official Oscars product in a swag bag is big business for companies promoting their products, noted Everson. "These things aren't given without pride and prejudice. There is a tax implication for them. We just want to make sure no one crashes into the tax code."
Or, as the IRS clarified in its follow-up Gift Bags Questions and Answers page, the "merchants who participate in giving the gifts bags do not do so solely out of affection, respect, or similar impulses for the recipients of the gift bags."
That is, swag bags are not gifts. And if they aren't gifts, they are income. Taxable income.More taxable bags, lower taxable values: After the IRS' initial call on Oscars booty, similar awards shows followed suit.
The many presentations, accompanied by hundreds of goody bags worth thousands of dollars, have provided the U.S. Treasury with a nice little income boost.
But whether it's because of tax complaints by the recipients -- OK, probably not, since a swag bag is a just a tiny drop in big-time stars' gigantic ocean pool -- or a tighter economy that's hit even Rodeo Drive devotees, the value of the swag bags had decreased over the years.
Back in 2006, the bags were filled with goodies that topped the $100,000 mark.
Five years later, Distinctive Assets, which has been putting together Oscars bags for more than a decade, valued the products at $75,000.
For 2013 ceremony, Distinctive Assets says the bags are worth $47,802. That's the least-expensive Oscars' swag collection in five years.
The relative bargain-basement value of this year's Oscars gift bags still will produce a hefty tax bill. A rough calculation at the 2013 top individual tax rate of 39.6 percent means each bag will produce a tax bill of just under $19,000.
And since most the stars are California residents, they'll also owe Golden State taxes on the swag.
What's in the bag? Among the items in 2013's relative bargain basement bag are:
- a $4,100 week-long weight-loss retreat,
- a $406 hand cream,
- a $795 water filtration device,
- a $1,800 pass to the VIP club at London's Heathrow airport,
- a $19.99 clothing de-fuzzer,
- a $3.99 cleaning product from Windex, and
- a six-pack of condoms valued at $20.
The overall lower swag bag value is due in large part to more physical items instead of trips, Lash Fary, founder of marketing firm Distinctive Assets founder Lash Fary told NBC. "Redeeming 12 trips in one year is difficult for anyone … let alone a busy celebrity."
But one thing that the recipient celebrities can expect to get is word on the goodies' value next year via a 1099-MISC. The IRS will get a copy of this third-party information reporting document, too.
And if some celebs decide to give away their goodies to qualified charities, that's really nice. They also might be able to claim a tax deduction for the donation.
But, notes the IRS, the philanthropic move does not change the taxability of the value of the items. The fair market value must still be reported on the star's federal income tax return.
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