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IRS wants its cut of celebrity freebies

'Outreach' program reminds the beautiful people that nothing -- not even awards show 'swag bags' filled with watches, electronics and trips -- is truly free.

By MSN Money staff and wire reports

Movie stars who took home those lavish gift baskets handed out at this year's Oscars will get some decidedly unglamorous notices: Don't forget to pay tax on the loot.

"There's no special red-carpet tax loophole for the stars," Internal Revenue Service Commissioner Mark Everson said Thursday.

The Academy of Motion Picture Arts and Sciences, in an accord with the IRS, agreed to pay taxes due on gift bags handed out through last year. Neither organization would say how much tax was owed or paid.

But responsibility for paying taxes on the latest gifts, handed out in March, falls on the recipients. They will be getting tax forms from the Academy as reminders.

The Academy of Television Arts & Sciences recently sent out letters to presenters and nominees scheduled to appear on the Aug. 27 Emmy Awards advising them they will be responsible for paying income taxes on the freebies in their "very special Gift Bag," worth between $27,000 and $33,000.

Every recipient, the New York Post reported, was asked to sign and return a letter to the Academy acknowledging, "You are aware of this obligation . . . We will not be able to present a gift bag to any individual for whom we have not received this signed letter in advance."

The Academy hinted it might be forced to turn over a list of its swag-bag recipients to the IRS.

Not given 'solely out of affection, respect'

The agreement marks the beginning of an IRS effort to remind the entertainment industry that award-show gifts and promotional giveaways are considered taxable income. (Read the IRS Q & A on gift-bag taxes.)

The value of the gifts must be reported on a celebrity's tax return. They count as income because the IRS does not believe the gifts are given "solely out of affection, respect or similar impulses.

"This is a big perk that (celebrities) have become very, very accustomed to," said Lash Fary of Distinctive Assets, a company that provides lavish gift bags for celebrity events. "You're never too rich or famous to deserve gratitude and appreciation. This is a nice thank you gift for them."

The IRS called attention to the issue just before this year's awards. In April, the Academy voted to stop thanking award presenters and performers with gift baskets, although its officials say they hope to find another way to express their gratitude.

In a statement, Academy President Sid Ganis said the baskets had traditionally been viewed as "mannerly thank-yous."

But the Academy sought an agreement with the IRS because "we didn't want any of our presenters to get hit retroactively for a gift we had given them," he said.

Big business

Celebrity gifting has become more lavish as marketers try to harness some star power to advertise their goods. The giveaways often include luxury trips, jewelry and electronics.

George Clooney donated his Oscar swag bag to United Way. It fetched $45,100 at auction, benefiting the United Way Hurricane Response and Relief Recovery Fund. Clooney may be eligible for a tax deduction.

The bag, given to presenters at the 78th Annual Academy Awards, included a BlackBerry 8700c, a Kay Unger kimono and a cultured Tahitian-pearl necklace. Clooney also took home another prize -- best supporting actor for "Syriana."

The Internal Revenue Service said it is not conducting a special audit initiative in this area, but questions about gift reporting might arise during an examination of an individual's tax return. Donors giving gifts to celebrities will be reminded to fill out special informational forms reporting the gifts to the IRS.

A celebrity swag-bag sampler

Celebrity gift baskets typically come packed with the latest electronics, designer clothes and jewelry and gift certificates for fancy dinners, four-star hotel stays, spa treatments and cosmetic surgery procedures.

Actors who don't take home trophies at this year's Emmy Awards will receive extravagant consolation gifts from Distinctive Assets worth $42,000, Fary said. Each massive swag bag -- packed in a rolling footlocker for ease of transport -- includes a couture iPod case worth $395, Stud Monkey jeans that sell for $280 and a VIP stay at Caesars Palace in Las Vegas valued at $8,500.

Presenters at February's Grammy Awards enjoyed free LASIK eye surgery, a SportsClub LA bicoastal gym membership, a dozen skin-care treatments, an XM satellite radio, martial arts classes, customized Louisville Slugger bats and a case of whiskey. Total value? Nearly $70,000.

"Ten thousand dollars is the minimum value" of a celebrity gift bag, Fary said. "For the Grammys, Oscars and Emmys, you're talking $50,000 plus."

Officials at Sundance -- whose annual Park City film festival has become connected with a celebrity gift-house free-for-all -- hope new attention from the IRS dissuades celebrities from accepting piles of swag that has nothing to do with their work.

"Our feeling is that it's embarrassing and uncool to be a highly paid actor or actress who is photographed with free things," said Elizabeth Daly, a director at the Sundance Institute. "My hope is that it will be a real wake-up call that the whole idea of celebrity gifting has gotten out of hand. It's tacky."

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