2023 Oscar Nominees Could Face a $46k Tax Bill for “Swag Bags”
- Jun 14, 2023
- Miri Forster
Winning an Oscar can be a career-defining moment for a Hollywood star, leading to bigger roles and higher earnings down the road. For some of the nominees who end up losing on Oscar night, however, one silver lining is that they’re still eligible to receive the infamous Oscar “swag bag.” Each year, dozens of Oscar nominees receive the coveted collection of expensive gifts, which includes designer goods, vacations, and even vouchers for cosmetic procedures.
Some of these stars might be surprised to learn that the receipt of these “gifts” comes with one major string: a federal tax bill. Depending on which state the star is based in, additional state income taxes might be owed as well. Although gifts usually are not taxable to the recipient, the Oscar swag bags are not considered “gifts” for federal tax purposes. The IRS even put out an FAQ about this topic on its website.1
Under IRC Sec. 102, gross income does not include the value of property acquired by gift. A “gift” is defined as being motivated by “detached and disinterested generosity.”2 In other words, it must be given out of pure generosity rather than being given in exchange for some kind of anticipated future benefit.3 As the FAQ on the IRS website states, “the organizations and merchants who participate in giving the gift bags do not do so solely out of affection, respect, or similar impulses for the recipients of the gift bags.” Rather, the merchants who participate in the gift bags do so in hopes of some kind of benefit, such as the publicity that comes with having a celebrity use your product or service.
In 2006, the Academy of Motion Pictures Arts and Sciences voluntarily approached the IRS to resolve the ambiguity surrounding the taxability of these “gifts.” On August 17, 2006, the Academy and the Service announced that they had entered into a closing agreement to resolve any tax obligations resulting from the gift bags through the 2005 tax year, and to agree upon a framework for the treatment of the gift bags going forward.4 The terms of the agreement included issuance of Forms 1099 to the recipients of the gift bags.
For this year’s nominees, the goodies were valued at a whopping $126,000.5 Assuming a marginal tax rate of 37%, celebrities who accept the gift bags could face a federal tax bill of up to $46k. For certain gifts such as non-transferable certificates or vouchers, the recipient only has to include the value of the product, trip, or service if they actually redeem the voucher or certificate.6
1This FAQ has been designated as “Historical Content” and has not been reviewed or updated since 3/4/2020.
2Commissioner v. Duberstein, 363 U.S. 278, 285 (1960).
3See Mesinger v. Commissioner, 31 T.C. Memo. 1972-229.
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