And the Winner Is: The IRS…Seriously

Posted on Mon, Feb 27, 2017 ©2021 Drucker & Scaccetti

By: Eric R. Elmore

 

The closing moments of Sunday’s broadcast of the 89th Academy Awards brought more drama than the honored performances. It was a reminder we all make mistakes, like “forgetting” to report some “gifts” as income to Uncle Sam. The elaborate “gifts” given to Academy presenters and performers add up to tens of thousands of dollars, and when those gift baskets, boxes, and envelopes are opened, the IRS is always the real winner!

 

Each year, the Academy reminds the recipients its gifts are 100% taxable as income. Movie stars and music icons performing on cinema’s biggest stage and biggest night, may find that fact easy to forget or overlook. 

 

Since the 1970’s, simple gifts, like a year supply of coffee or lipstick, evolved into more expensive items as branding opportunities exploded. Today, gifts include stays at hotels and resorts and high-end clothing and accessories.  As the gifts became more expensive, the question of taxability became more apropos. That’s why in 2006 the Academy voluntarily approached the IRS to clear the air about these gifts and their taxability. Form 1099s were issued to previous recipients and, in 2006, the Academy decided to no longer give gift baskets as a thank you.  But, the cessation did not last long.

 

The 2017 swag bag for selected Academy nominees and winners totals over $100,000 in value with items like stays in Sorrento and Lake Como, Italy, and a kit to turn a home into a “Smart Home.”  To be clear, gifts like the trips mentioned above must be redeemed to be considered "received" by the IRS.

 

The practice of giving gift baskets to celebrities is still very much a part of Hollywood and music culture and has evolved beyond gifts from the Academy.  In fact, at last night’s awards, music producer and nominee Pharrell Williams was given hand-made knitted rockets on the red carpet as a gift for his new-born triplets. The gift was a nod to his producing the music score for Best Picture nominee Hidden Figures.

 

Other industry standards like custom-made tuxedos and gowns sometimes come as a gift to stars with the promise of promotion on the red carpet and in the media. According to the IRS, these are all categorized as taxable income. So clearly, the best things in life are NOT free.

 

The IRS regularly conducts outreach to the entertainment industry to ensure awareness of the tax obligations of giving and receiving gifts at award shows and other gatherings.  Those of you who lead large organizations that thank participants or volunteers in the same manner, should also heed the IRS’s instruction.

 

So, there is no mistake, no alternative facts or fake news here. All gift baskets are taxable income, and those that exceed $600 in value must be reported on Form 1099MISC, period. To Warren Beatty and Faye Dunaway, we are sorry for first putting the blame on you for misreading the Best Picture winner. And, kudos to the graciousness of the producers of La La Land for quickly and elegantly recognizing Moonlight as the actual winner.

 

They’ll be scratching their heads for a while to get to the bottom of this mistake.  Hey, maybe the Russians are to blame?!   However it turns out, we know somewhere Steve Harvey is grimacing, because when a winner is announced incorrectly, he will be forever referenced as the originator of “Envelope Gate.”

Topics: gifts, Form 1099, Tax, IRS, Best Actress, Mistake, 89th Academy Awards, La La Land, Steve Harvey, Warren Beatty, Academy Awards, Oscars, Envelope Gate, Moonlight, Faye Dunaway, PwC, Best Picture, 2017, Material Weakness

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