Who gets to pay when you get a gift? All of those Hollywood A-listers who accepted gift bags at the Oscars or any other awards show.
Over at Forbes, contributor Robert Wood looked at the cost of the freebies and estimated that the gift bags handed out this year totaled $126,000 in value each. For the record, that’s down from the $137,000 per bag estimated last year by CNBC.
The Internal Revenue Service has long decided these gifts were not really like presents from grandpa and grandma under the Christmas tree.
“If you think about it as ‘what is the intent of providing those items, products or services?’, obviously it’s the hope that the celebrity is going to use that product, go on that vacation. They’re trying to influence behavior,” said Eric Bronnenkant, head of tax at Betterment.
The IRS alerted the entertainment industry in 2006 to the practice of taxing so-called gifts years ago, writing, “In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return.”
Wood did the math. Ouch.
“At the 37 percent IRS tax rate, that’s $46,620. California-based stars will have to pay California’s up to 13.3 percent tax too, another $16k or so. That’s up to $63,378 in state and federal taxes,” he wrote.
Oscar nominees in the acting and directing categories received more than 60 gifts.
This year’s choices included a three-night stay at The Lifestyle in Canada worth $40,000, a $12,000 arm liposuction procedure, a private hair restoration consultation valued at $7,000 and $10,000 worth of cosmetic procedures.
The Academy of Motion Picture Arts and Sciences no longer hands out bags due to the tax issue.
“It seemed a little inappropriate to offer a gesture of thanks that then carried with it a [tax] obligation,” Leslie Unger, a representative for the Academy, told CNN in 2006, when the deal with the IRS was struck to tax all gift bags from that point forward.
The gift bags are handed out by Distinctive Assets, and its founder Lash Fary.
He said some reports “make it sound like I walk around with a briefcase full of $140,000 in cash and hand it to these nominees. In fact, $5,000 of that $137,000 [value] is physical products that they can take out and put in their cupboard or re-gift to their mom or kid. The rest are invitations or offers that have no taxable consequence and no true value unless they redeem it.”
Fary, speaking after last year’s ceremony, spoke about a $50,000 trip to Turin Castle that was part of the gift bags.
“Let’s say that Will Smith doesn’t go on the trip. His bag isn’t worth $137,000; it’s worth $137,000 minus $50,000,” Fary said, running down the list. “If he doesn’t go to the Golden Door, that’s another $15,000 off. And if he doesn’t use the home renovation services from Maison Construction, that’s another $25,000 off.”
“A lot of the trips have gotten redeemed, but no one has ever redeemed every single thing,” Fary said.
But Wood, writing for Forbes, noted that “Although the value of these goodies really isn’t pay, you still have to report it on your tax return. In case any attendees forget, they receive an IRS Form 1099 reporting it, and these forms 1099 are key to your taxes. If you fail to report it, it can be ugly with IRS tax bills and penalties.”This article appeared originally on The Western Journal.