The IRS and Hollywood Exchange Gift Baskets

Posted on 16. Jan, 2007 by in News, Taxes

hollywood_giftbasket.jpgWell, by “exchange” I really mean “agree on,” and by “gift baskets” I really mean “the tax consequences associated with gift baskets.”

You may remember that a few months ago I mentioned that Hollywood had voluntarily approached the IRS to discuss the tax implications of gift baskets at award shows. Typically at the Oscars or the Emmys, companies give away truckloads of expensive free stuff to the only people that can actually afford to buy it – the stars. However, whenever you get free stuff like that – game shows have the same issue – the value of the gifts are actually taxable. And as you might have imagined, Hollywood hasn’t required celebrities to pay taxes on their gift baskets… until now.

The IRS is reporting that they have now reached an agreement with the Hollywood Foreign Press Association which includes a settlement for gifts given through 2005. Recipients of 2006 gift boxes will be issued appropriate informational tax forms by the HFPA and will be responsible for satisfying their income tax obligations.

And since the IRS has seen the phenomena of gift baskets grow exponentially, the IRS has contacted the entire entertainment industry groups and others to focus attention on tax guidelines for gift bags and other promotional items. The effort is concentrated on two main areas:

  • Reporting compliance by the stars and other recipients receiving the items.
  • Completion of Form 1099s as appropriate by those providing the items to the stars and other recipients.
      This outreach provides an opportunity for taxpayers, businesses and tax professionals to better understand their tax obligations as it relates to these luxury goods and services and the associated tax implications. The outreach effort is also aimed at keeping entertainers, organizations and others in this area in compliance with the tax law.

      Although I’m still confused about how celebrities are the ones getting the free gifts, I’m happy that they are at least going to pay taxes on them now.

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