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IRS Targets Award Show Goody Bags
Academy Will Now Stick to Giving Out Oscar Trophies

By Kathleen Day
Washington Post Staff Writer
Friday, August 18, 2006

Movie stars appearing at the Academy Awards will no longer receive the lavish goody baskets they have come to expect -- worth as much as $100,000 each and including freebies such as iPods, resort vacations, coupons for laser eye surgery, jewelry and high-priced lingerie -- because of a crackdown by the federal tax collector.

The Internal Revenue Service and the Academy of Motion Picture Arts and Sciences yesterday announced they have reached a settlement on undisclosed taxes owed to the government on the "gifts" received at the Oscars in the last several years, through 2005.

The academy also announced it will no longer give out the bags, saying the board quietly voted last April to end the practice. In recent years, the academy has given the bags -- also known as gift bags or swag -- to as many as 200 hosts, performers and winners on Oscar night. "There's no special red-carpet tax loophole for the stars," IRS Commissioner Mark W. Everson said in a prepared statement. "Whether you're popping the popcorn, sitting in the audience or starring on the big screen, you need to respect the law and pay your taxes."

Typically, if the IRS finds someone has failed to pay taxes but no fraud is involved, it assesses back taxes, interest and penalties for only the preceding three years. In this instance, if 200 people received $100,000 baskets in each of the three years through 2005, the taxable non-cash income would be $60 million.

Neither IRS spokesmen nor Academy spokeswoman Leslie Unger would confirm or deny that number. Nor would they say whether, under the terms of the settlement, the IRS forgave back payment, interest and penalties. Nor would they say whether the Academy has paid a lump sum on behalf of past recipients.

If the agency forgave the debt, that means U.S. taxpayers are footing the bill. If the academy paid back taxes on behalf of past Oscar participants, these celebrities would have to count that as additional taxable income.

Albert Lauber, director of Georgetown law school's tax program, said he thinks it would be hard to collect money from the celebrities for past years. He said the IRS most likely agreed to settle the matter if the Motion Picture Academy paid a penalty for failure to file forms with the IRS.

Paying a penalty rather than back taxes means the movie stars involved won't have to count that money as income. "What the IRS is most interested in is getting compliance going forward," he said.

Unger would not confirm that, but did say participants in this year's Oscars are being notified they must pay tax on bags received at the awards in March. Those who got gift bags before that "will not receive tax forms" or notifications, she said.

The IRS is engaged in similar talks with the Academy of Television Arts & Sciences, which hosts the Emmy Awards. The television academy recently sent out letters to stars participating in this year's Emmys, less than two weeks away, saying no one would receive a bag without signing a statement acknowledging that recipients bear responsibility for paying taxes on the goods.

In March, just before this year's Academy Awards, the IRS announced that the bags were not gifts but rather "non-cash compensation" and therefore taxable. The IRS said the Motion Picture Academy and anyone else giving away such goods should have been filing forms with the IRS saying who got the bags and how much they were worth. Each recipient should have counted the goods as taxable income.

The contents of last year's official Oscar bag included four nights at the Vera Wang suite at the Halekulani Hotel on Waikiki Beach, handcrafted truffles in a silk box, a private dinner party at Mortons, a vintage silk kimono, a Krups premium pump espresso machine, personalized dog training, a pearl-and-diamond necklace, spa treatments, surfing lessons, two nights and days of wine tasting in Carmel, Calif., mobile phones, a cashmere travel blanket and "an at-home artisanal cheese experience for six."

Companies donate items because they hope being associated with a movie star will generate publicity for their products and services. Typically they expense the donation as an advertising or marketing cost.

Many in Hollywood wonder if the IRS crackdown will cause other organizations and charities to suspend the practice of giving out goody bags at their events.

Once upon a time, swag was simple, commemorative and not worth much.

Swag observers noticed a pronounced change around 2001, when the entertainment media discovered the bags and began an escalating war to publicize their contents. For each successive awards show, it was like an arms race. The gifts just got bigger and bigger and more extravagant.

"It became a phenomenon," said Karen Wood, president of Backstage Creations, which helps place high-end products in a well-manicured hands. "Let's face it. Celebrities are our royalty. They're the arbitrators of style, the taste-makers for that hot new trendy item."

She said swag-giving isn't necessarily dead. The trend now, she said, is to couple the gift-giving with charitable donation. As Wood's company does it, celebrities enter a small "gifting room," where they choose the phones, shoes, watches or other items they want. At another table, they donate all or some of the loot to a charity -- and get a tax letter then and there.

"It's win-win," Wood said.

Staff writer William Booth contributed to this report.

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