Even Stars Have to Pay Taxes

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Everybody loves a freebie. But a gift bag worth between $27,000 and $33,000?

In Hollywood — where egos, paychecks and breasts tend to run bigger than anywhere else in the U.S. — gift bags, also known as “swag,” are generously handed out to presenters at each of the half-dozen or so major awards ceremonies that take place each year. Typically the bags contain tens of thousands of dollars worth of goods and services donated by companies eager to have celebrities using their products. Even the richest stars snag swag, and who could blame them?

But an end to swag is in sight. Presenters at the upcoming Primetime Emmy Awards on Aug. 27 must sign and return a letter from the Academy of Television Arts and Sciences acknowledging that they are aware that under IRS guidelines they have to pay taxes on their gift-bag goodies, even if they are the star of the hottest hit sitcom on network television. The letter is, in effect, the Academy’s way of absolving itself of responsibility for unpaid gift taxes.

The action comes in response to a crackdown on swag by the IRS that began several months ago. In March, just before the Academy Awards, the tax agency released a memo cautioning recipients that gift baskets are income and that “movie stars face the same tax obligations as ordinary Americans.” The crackdown may have something to do with the fact that the Academy Award gift bags this year were valued at more than $100,000 each, and included such goodies as a four-night $25,000 Hawaiian vacation and $7,000 worth of Victoria Secret undies. In total, unreported gift bags cost the IRS an estimated $1.2 million in lost tax revenue. Today the Academy of Motion Picture Arts & Sciences, which produces the Academy Awards, announced a settlement in which taxes on the gift bags given out in March of this year are the responsibility of the recipient. But as of next year, the Academy board has voted to discontinue them altogether.

The gift bags will still be given out at this year's Emmys, however. A TV Academy spokeswoman says that the letters informed presenters of the tax consequences and guidelines of accepting swag. After that, it’s between a presenter and his or her accountant. “For this year’s Emmys, it’s happening,” she says of the gift bags. “It’s premature to have any decision or conversation right now about what will happen in the future.”

That means this year's presenters will still get a load of goodies including five days at the Old Bahama Bay on Grand Bahama Island, a one-year bicoastal membership to Sports Club L.A. (with facilities in a half-dozen other locations), a string of real pearls, Dooney & Bourke leather rolling luggage, a 365-day supply of Dove chocolates and Sprint Fusic mobile phones, which retail for $329 each. Just how much the IRS gets is between them and their tax accountants.