LOS ANGELES - Despite the much-publicized IRS crackdown on celebrity freebies, the swag-tastic star treatment hasn't slowed a bit.
Just look at the gift-strewn lead-up to Sunday's Grammy Awards: there's the Grammy Style Studio, where nominees select designer duds to wear to the show; the backstage Talent Lounge, which invites stars to pick from a selection that includes Gibson guitars and Gucci sunglasses; and the Grammy gift bag, packed with cosmetics, clothing, concert tickets and gift certificates galore.
Spawned by the increasing visibility and unceasing popularity of celebrity gifting, the Internal Revenue Service launched an outreach program last year to remind stars that, in Uncle Sam's eyes, swag counts as taxable income.
"There's been a great emergence of gifting and gifting suites, and fairly extravagant values associated with the gift bags and gift boxes," says IRS spokeswoman Beth Tucker. "We're reminding folks about the taxability of the gift bags, the gift suites, the swag."
In other words, all those freebies are taxable. If it's worth more than a bouquet of flowers, it belongs on your tax return.
As a result of the IRS effort, the Academy of Motion Pictures Arts and Sciences announced in August that it would end its longtime tradition of thanking superstar Oscar presenters with plush booty baskets (reportedly worth nearly $100,000) and pay taxes on gift bags already given. The Hollywood Foreign Press Association followed, stopping its goody-bag giveaway with last year's Golden Globes.
But fear not, swag-seeking stars. The fountain of freebies is far from dry.
Businesses large and small can't wait to give their products to celebrities, who can turn an unknown item into a must-have with the quick click of a paparazzo's camera. Companies clamor for inclusion in gift bags and gift suites, often paying a fee to be featured.
Whether it's an awards show, film festival or other entertainment event, where there are stars there are gift suites -- typically hotel rooms transformed into shopping centers where almost everything is free. Show-sponsored suites are a way to entice presenters and performers to come to rehearsals and thank them for participating.
Other gift rooms are just to thank the stars for being stars and get products into their hands. There was one official gift lounge attached to this year's Golden Globes -- and seven unofficial ones. Last month's Sundance Film Festival had no official gifting spots, yet photos of stars and their swag filled the pages of People and Us Weekly magazines.
"None of our events are official," said Lorena Bendinskas, co-founder of The Silver Spoon Entertainment Marketing, which sponsors gifting "buffets" around awards shows throughout the year.
Celebrities don't even have to leave home to gather the goods. Many manufacturers send their wares straight to stars, Bendinskas says: "For celebrities, every company wants to personally gift them with something. It's a birthday gift, so hopefully they won't be taxed on that."
They probably will, says Tucker of the IRS. Almost any corporate gift for the famous is taxable.
"Taxability is driven by intent," Tucker says. "With entertainment-related gifting, it's typically given for an appearance or some other participation" with the company or event, not out of unfettered affection and admiration.
IRS has had no impact?
Lash Fary, founder of entertainment marketing firm Distinctive Assets, says the IRS initiative hasn't had an impact on the number of celebrities accepting gifts nor the number of companies offering them.
"The individuals we serve in the gifting world don't really live their lives based on tax implications," he says. "If it costs a few extra dollars at the end of the year when they're already paying millions in taxes, it's not a big concern."
Fary's firm, which is producing the Grammy gift lounge and gift bag, includes tax paperwork with its freebies, he says. His company, he estimates, "easily gives out at least $100 million in gifts" each year.
"We're busier than we've ever been," he says. "As long as celebrities continue to grace the covers of magazines, people will continue to want to align their products with them."
The payoff for companies is practically instantaneous. As soon as a product shows up in a celebrity photo, the phones start ringing, says Harris Theophanous, spokesman for Brown Shoe, which comprises various brands, including Dr. Scholls and Via Spiga.
"If we get a placement in Us Weekly or In Touch, that's a free placement without us paying for an ad," he says. "With these gifting suites, it's a great return for what we invest."
It's far cheaper to give a star a free sweater or handbag than to hire them as a spokesperson, and "having a celebrity's implied endorsement is really gold to a company," says Karen Wood, founder of Backstage Creations, which produces private gifting suites.
Besides, stars accepting swag understand they're engaging in a business transaction, she says: "(Companies) are saying to the celebrity, `If you take a photo with our product, we're more than happy to give you the product.'"
It's a win all around, Wood says. The stars get free stuff, the companies get free promotion and celebrity magazines get plenty of fodder to fill their pages.
Well, maybe not everyone is winning -- the IRS might be missing out. Just how much is the agency losing in unreported swag tax?
"There's no solid estimate on the potential tax liability associated with the emergence of gifting," Tucker says. Clearly, though, the figure's high, and getting higher.
Companies aren't required to issue a 1099 "miscellaneous income" tax form unless the value of the product being gifted (a verb only in the entertainment world) is over $600. Otherwise, it's up to the recipient to keep track of what they've collected and report it accordingly. The IRS has no easy way to track the distribution of gifts valued under $600 -- and those might be the most popular products at a celebrity suite.
"It's much easier to ensure compliance when we have the information documents," Tucker says, adding that some gifting rooms provide blank 1099 forms so celebrities can tally up their take immediately.
At Backstage Creations' gift suites, stars can directly donate items to charitable causes, Wood says.
But, Tucker notes, they still have to claim the gifts on their taxes -- first as income, then as a charitable donation. Once they take "constructive receipt" of the gifts, they are responsible for any taxes owed, she says.
Recipients can, however, escape taxation on gift certificates they never redeem, Tucker says. Otherwise, taxes are applied on the total "fair market value" of the gifts. If the jeans in a gift bag sell for $250, that's the amount upon which taxes are assessed.
Longtime L.A. tax attorney Skip Kessler says that before the IRS initiative, most stars weren't reporting their swag.
"Celebrities have a large sense of entitlement. They lose sight of reality and nobody thinks of the tax code when somebody is bestowing what seems to be a gift on them," he says. "There was an administrative decision at the IRS not to enforce the tiny stuff, but this has gone way beyond it."
