While I confess to not really following the Oscars – I still haven’t forgiven the Academy for its egregious omission of “I’m Gonna Git You Sucka” from the candidates for Best Picture of 1988 — I am fascinated by one of the ancillary elements of the film industry’s big night: the gift bags given to each and every nominee.
First, I find it a tad unsettling that celebrities, whose lives are already made cushy courtesy of their private jets, personal chefs, and robot butlers*, are lavished with bags of free swag with an estimated value in excess of $100,000.
Second, and much more germane to this blog, I have to ponder if the IRS has addressed the tax consequences of being handed a bag worth $100K, something few people outside Hollywood, the mafia or the USC football program will ever experience. Please tell me the James Francos of the world will at least pay tax on their good fortune, right?
Of course they will.
In the eyes of the IRS, any accretion to wealth represents taxable income, barring some statutory exception. Now, I don’t know where you come from, but $100K certainly qualifies as an accretion to wealth in my neighborhood, and the IRS agrees.
In fact, in 2006 the IRS announced that it had reached an agreement with the Academy to insure that gift bags were being treated appropriately by the recipients for income tax purposes. The IRS clarified their position with the following Q&A:
Q: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: 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.
Q: If these are gifts, why do they have to be treated as income?
A: These gift bags are not gifts for federal income tax purposes because the organizations and 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.
Q: Can the recipient take a charitable contribution deduction if he or she contributes the gift bag to charity?
A: If the gift bag is donated to a qualified charitable organization, the recipient may be able to take a tax deduction for his or her charitable contribution, subject to applicable limitations and requirements. But this does not change the taxability of the value of the items. The fair market value must still be reported on the celebrity recipient’s federal income tax return.
So to summarize, merely for showing up nominees incur a federal tax in the neighborhood of $35,000, regardless of whether or not they use the goodies. It almost makes me feel sorry for James Franco.
*may not actually exist at present