Goodie bagged

Celebs thrown for lucrative loop

By TIMOTHY M. GRAY

Is this the end of Hollywood's swag-bag jag?

Hours after the Internal Revenue Service confirmed its crackdown on Hollywood swag, reps of Sundance said they were "thrilled," and many in Hollywood echoed the sentiments of the IRS that "it's gotten out of hand."

In simultaneous releases Thursday morning, the Academy of Motion Picture Arts & Sciences and the IRS confirmed that the two had reached a settlement on goodie-bag income tax (Daily Variety, Aug. 17).

The crackdown on Hollywood's gift-giving culture follows months of talks after the IRS' pre-Oscarcast statement that it considers gift bags to be taxable income.

It's safe to assume that the "gift" culture may change but won't go away. "Free gifts really matter to some people," laughed one party organizer.

One beneficiary of the crackdown could be charities, with several gifting suites already encouraging celebs to donate their free stuff.

Asked why the IRS is cracking down now, decades after the phenomenon began, Kevin Brown, IRS commissioner of the small business-self employment division, said simply, "It had gotten out of hand."

He emphasized that Hollywood is not the sole target of such scrutiny, and that the effort is part of IRS commissioner Mark W. Everson's plan to make sure that "high-income people pay what they owe."

AMPAS prexy Sid Ganis said, "The intention of the gift baskets was to thank people who helped make our show a success. Unfortunately, over the years, the baskets began to receive more and more attention in terms of their contents and value, and our message of thanks was lost."

Many in the media portrayed goodie bags as a lamentable example of Hollywood excess. In the future, the org will figure out some alternate way of thanking presenters and performers.

"We still want to be able to express our gratitude, and we'll figure out a way to do that that doesn't come with a tax bill attached," Ganis said.

The Academy board had decided in April to discontinue the gift baskets. Ganis doubts that the freebie freeze will affect stars' participation: "Presenters appear on our show because they want to be part of the Academy Awards, to help us celebrate our art form."

Other orgs are planning their strategies.

The Academy of TV Arts & Sciences, presenting the Aug. 27 Emmys, said it's premature to discuss longterm plans. And Philip Berk, prez of the Hollywood Foreign Press Assn., said the org's tax attorney has been instructed to contact the IRS. "As for the possibility of discontinuing presenters' boxes at the Golden Globes, this is something we intend to bring to the board at their next meeting."

Some in the industry are already turning the swagapalooza into a charitable opportunity. The six-year-old Backstage Creations, which organizes eight to 12 gift suites a year, pointed out that this weekend's Teen Choice Awards will tout the City of Hope. Celebs can autograph their bags and leave in the items they wish to donate, with a charity then auctioning off the bag.

Celebs will be given a tax form to ensure proper paperwork. "It is a thank you from the awards show, thanking them for their time," said Backstage Creations prexy Karen Wood.

The recent BET awards gift lounge at the Shrine similarly benefited the AIDS Healthcare Foundation.

Wood points out that since the IRS' March announcement, celebs have been more conscious of the gifts they are taking. But if they want the swag, celebs are likely to keep it: "It doesn't matter how much money you have. everyone likes to get a gift," Wood said.

And even with the taxes, she added, "It's still a nice deal for people, even if you are in the 30%-40% tax bracket. A $10,000 watch is costing you $4,000."

Speaking of the IRS clampdown, Sundance Institute director of strategic development Elizabeth Daly said, "We're thrilled. We welcome anything that is going to discourage what we have deemed to be parasitic marketers from coming to town. It completely takes the focus off everything we are about, as well as from our official sponsors, who are the backbone of the festival."

Hanna Pantle, executive director of media relations for BMI, said, "I think this swag trend is burning itself out and the IRS mandate will force companies to re-evaluate what they are doing and why."

She adds that some brands are getting tired of people taking advantage of the swag. One celeb gave his $10,000 watch to his mom, who then tried to return it for cash at a Beverly Hills store.

One publicist who represents several top stars predicts a lessening of swag. "It's much too much conspicuous consumption. And given the state of the world, it's a lot more politically correct not to be getting stuff like this."

Nearly everyone involved in the gifting biz has horror stories -- celebs with nine-figure incomes grabbing at free Target sunglasses; CEOs of top corporations carrying two or three bags filled with cosmetics; two kudocast attendees arguing over who was the rightful owner of a bottle of shampoo.

Jennifer Price of the Lippin Group, who is overseeing Emmy gift lounges, agreed that celebrities are being more selective. For the most part, celebs are being given massages and haircuts and are "only walking out with chocolate and hand cream." The IRS, however, says that even these items (i.e., $400 haircuts) are taxable.

Execs at the Academy of TV Arts & Sciences, evidently quick to pick up on the significance of the IRS' March statement, had recently sent a letter to those scheduled to receive Emmycast gift bags.

Recipients were asked to sign a letter acknowledging their responsibility to pay taxes on the goodie bag -- or else they wouldn't get one.

Asked about longer-range plans, a TV Acad spokeswoman said such a discussion is premature.

However, one insider confirmed that the org's letter to presenters was proactive and not in response to any contact by the IRS.

The agency is beginning an outreach program to educate showbiz workers on the new procedures.

Beth Tucker, IRS director of communications, liaison and disclosure, said the program will start with mailing of contact letters and a Frequently Asked Questions sheet to entertainment industry companies, including music, TV and film, as well as sharing info with tax professionals (tax advisers, attorneys and CPAs).

Then there will be in-person follow-up sessions as appropriate.

Not really a gift

The "gift" bags are not considered gifts for federal income tax purposes because they are not given solely out of affection or respect, according to the IRS' Brown.

In its FAQ statement, the IRS addresses why "gifts" should be considered income. It says that "organizations and merchants who participate in giving the gifts bags do not do so solely out of affection, respect or similar impulses for the recipients." In other words, there's work involved, and you folks aren't getting this gift just because you're so terrific.

As for those who "make selections at a free shopping room" -- i.e., a gifting suite -- the IRS FAQ sheet says the person must report the amount "equal to the fair market value of the selections."

Actors on awards shows appear without any compensation. Hollywood has always taken the stance that stars appear for a variety of reasons -- because they are loyal members of the film community, because they have a film to plug, whatever -- and the gifts are not a factor in their decision.

However, the IRS considers the swag to be their de facto paycheck and maintains that the actors wouldn't get the "gift" without the appearance.

IRS execs acknowledged that there are gray areas. The organization responsible for the "gift" must issue the 1099 for the fair market value of the goods. The recipient must report the fair market value of the goods as well as services redeemed/accepted.

In other words, if portions of the goodie basket go unused -- such as hotel and spa stays -- an adjustment in the amount reported as taxable income would take place.

Other issues regarding Hollywood freebies are more clear-cut. When a studio or company gives a lavish gift, like the cars presented to the cast of "Will & Grace," that's clearly income. One lawyer experienced in financial affairs said, "If you're an employee and the company gives you something in addition to your income, it's considered wages."

The tradition of Oscar gift baskets started in the 1970s to thank presenters and performers on the kudocast. (Nominees do not receive the gift basket.)

Other awards shows followed suit. Manufacturers quickly embraced the opportunity to connect with stars in the hopes of capitalizing on a celeb's use of their product. Increasingly, fanzines would cover the products. This year's Oscar "goodie bag" was actually a suitcase stuffed with such items as a Frette cashmere blanket, a Kay Unger kimono and a Tahitian pearl necklace.

It also featured certificates for a four-day stay at Wellness Retreat at Sanctuary on Camelback Mountain in Paradise Valley, Ariz., a two-night stay at the Bernardus Lodge in Carmel and a six-night stay at the Marriott Ihilani Resort & Spa in Hawaii.

Some celeb mags estimated the value at $100,000. George Clooney, a presenter (and eventual winner) at March's kudocast, donated his gift haul to the United Way Hurricane Response & Relief Recovery Fund, which auctioned it off online. The winning bid was $45,100.

On the Golden Globes red carpet this year, Gwyneth Paltrow expressed surprise (and apparent misgivings) that she was going to receive a cruise to Antarctica and Tasmania (estimated worth: $22,000) for being a presenter. (Press reports tagged the Globes goodies as worth $60,000).

In an April episode of "The Sopranos," Lauren Bacall (playing herself) was punched in the face by two mobsters who wanted to steal her $30,000 goodie bag. The goons smiled the following day at the Daily Variety headline "Swag Grab Nabs Industry Blab."

The headline may prove prophetic, as Hollywood and the IRS continue to examine perks.

(Kirstin Wilder, Pamela McClintock, Ian Mohr and Michael Schneider contributed to this report.)