IRS brings end to Oscar swag
In settlement, stars owe for 2006 but are off the hook for prior years; Academy says no more gifts.
NEW YORK (CNNMoney.com) -- A lot more of Hollywood's elite that go to the Oscars will be coming home empty-handed.
The Academy of Motion Picture Arts and Sciences has said it will no longer give out gift bags to presenters or performers after facing heightened scrutiny by the Internal Revenue Service.
"It seemed a little inappropriate to offer a gesture of thanks that then carried with it a [tax] obligation," said Leslie Unger, a spokesperson for the Academy.
Earlier Thursday, the IRS said it had reached an agreement with the Academy on resolving "outstanding tax responsibilities" on Academy Awards gift baskets given out up through 2005.
Neither group would comment on the details of the agreement, but it allows any individual who received an Oscar gift basket up through 2005 off the hook for paying taxes on the gifts.
Those individuals who received a gift at the most recent awards ceremony will be issued the appropriate tax forms and expected to cover the bill, the Academy said.
Prior to this year's Academy Awards, the IRS issued a warning to celebrities, noting that there are tax obligations for the freebies received in conjunction with the awards ceremony. Board members of the Academy officially voted to end their gift-basket program in April.
Typically the official Oscar gift basket comes with a whole host of goodies ranging from trips to jewelry to the latest gadgets.
The gift basket from the 2006 awards show, which was estimated to be worth more than $100,000 according to various news reports, contained such items as 60GB iPod from Apple, a vintage Kay Unger silk kimono, a six-night stay at the JW Marriott Ihilani Resort & Spa in Hawaii and a BlackBerry 8700c.
Under federal income tax law, such gift bags are treated as income, not gifts, by the IRS since they are not "solely out of affection, respect or similar impulses for the recipients of the gift bags," according to a statement issued on Thursday by the IRS.
"There's no special red-carpet tax loophole for the stars," IRS Commissioner Mark Everson said in a prepared statement. "The gift basket industry has exploded, and it's important that the groups running these events keep in mind the tax consequences."
While the federal tax agency says there is no enforcement initiative under way, it is reaching out to the larger entertainment industry over the tax obligations of these gift bags and promotional items.
The Screen Actors' Guild, which not only represents 120,000 actors in film, television and commercials but hosts its own annual awards ceremony, would not comment directly on the new IRS initiative. The organization said it does offer its own form of gift basket during its awards show.
Yet the Academy's decision to end its practice of awarding gift baskets, which was firmly established by the 1970s, does not mean that eager companies still won't try to bombard celebrities with swag in the hopes that they will promote their products.
Karen Wood, president of Backstage Creations, an entertainment marketing firm that acts as a matchmaker of sorts for celebrities and product companies, said she expects the only possible impact the new IRS scrutiny will have is to force more celebrities to give away those freebies to charity.
"It's a win-win situation since there are celebrities associated with the products and yet there isn't a tax liability for the celebrity and it helps to raise money for worthy causes," said Wood.