A look at tax issues surrounding the Oscars
The Academy Awards ceremony has become famous for expensive gowns and jewelry and extravagant swag bags. And where a lot of money is involved, the tax man is never far behind. The gowns and jewelry are often on loan from designers seeking to promote their brands, some even paying celebrities to wear and mention the designer on the red carpet. The swag bags given to nominees from brands trying to associate them with the celebrities in attendance include the usual products and services, such as travel destinations, beauty products and treatments, food treats and more, but also a few more unusual items like bullet-resistant doors, a urine collection device, a brain-sensing headband, and a vaping pen. The recipients may think of them as gifts; however, in the view of the IRS these are taxable events, since the transfer is done with a profit motive.
Gift taxability depends on the recipient & giver
However, the practice of giving swag bags away has continued by outside vendors. Similarly, when a designer pays an actress to wear a gown or jewelry, that payment is taxable to the recipient. Should the gown or jewelry be a permanent transfer rather than just a loan, the value of the gown or jewelry is also taxable. Even the value of the Oscar statue is potentially taxable to the recipients. Some of the tax issues associated with the Oscars include:
- When is something that’s received a non-taxable gift versus an item or service taxable at its fair market value
- What taxes could a celebrity expect to pay for being paid to wear a gown or jewelry
- What taxes could a celebrity expect to pay for receiving a swag bag
- The tax implications for celebrities who give away, donate, sell, or refuse to accept all or part of their swag bag items
- What should celebrities do to avoid these taxes
- What states now permit wagering on the Oscars, with related tax issues
- Similar tax issues can come up with game show prizes, lottery winnings, and endorsement deals
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Expertise for all tax matters
Tax expert Mark Luscombe, J.D., LL.M, CPA, Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting, is available to discuss the potential tax issues surrounding the Oscars and similar tax issues in other settings.
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