Are Those High-Value Gift Bags Given to Celebrities at Awards Shows Really Tax-Free?

If you tune in to watch the Golden Globes, the Oscars, and the endless lineup of other awards shows, you've no doubt noticed the goodie bags that celebrities are given for serving as presenters, or sometimes just for making an appearance. Most of us think of goodie bags as the little trinkets kids get at birthday parties. Not so with the awards show gift or goodie bags. They may contain such items as tickets for luxury trips, expensive jewelry or electronics, and other high-dollar "trinkets," valued altogether at up to $100,000.

Dozens of these awards shows are held each year... after all, nobody loves to congratulate and admire themselves like Hollywood does. Besides Hollywood entertainment, what other occupation can you name that creates more of itself... that is... more entertainment, by holding a show designed to let actors high-five each other, and then televise it?

You may wonder when you watch these awards shows if those lucrative goodie bags represent taxable income to the wealthy celebrities. Until recently, the celebrities thought it did not. Just imagine... by participating in a few awards show a year, celebrities not only get additional publicity, an open mic in which to shove their politics down your throat, and hundreds of thousands of freebies a year.

But the days of paying no income tax on those goodies are gone. In early January 2007 the IRS announced that they had reached a satisfactory agreement with the Hollywood Foreign Press Association or HFPA regarding the taxability. The Internal Revenue Service noted that, in reaching the agreement, the HFPA was quite cooperative.

In the past, most celebrities have not included those goodie bags in their taxable income, mistakenly believing that they didn't have to. You may be wondering why something considered a gift would be taxable, since we give gifts throughout the year without the question of taxability.

Here's the difference:

The gift bags are generally given in exchange for the celebrities services as presenters. And, the providers of the gifts deduct the cost of the items on their tax returns, as deductible expenses. Presents made without any expectation of service, like the gifts you give your family through the year are not taxable. If your boss gives you a noncash gift of small value like a turkey or ham for Christmas, that falls under the De Minimis fringe benefit, or minimum value rule, and is not taxable income. A gift certificate from your boss is like cash, and may be taxable.

After a long process, the HFPA agrees that the gift bags represent taxable income. The explosion of the gift bag practice is fairly recent according to IRS Commissioner Mark W. Everson. "The fact this gift bag practice grew so quickly is stranger than fiction."

Rather than require the celebrities involved to amend their tax returns for two years and pay tax they didn't know they owed, the producers of the Golden Globe awards agreed to pay the taxes for those years. Celebrities receiving gift bags in 2006 will pay their own taxes. And, as for the future, the HFPA voted to halt the practice of thanking the stars in this way. That was the agreement, but... if you watched the 2007 Golden Globes, you may have noticed the gifts were still flowing freely.