Hollywood Drops Time-Honored 'Goodie Bag' Tradition to Avoid Taxes

Dear Friends,

Did you catch any of the recent Golden Globe Awards ceremony? I don’t know about you, but by about the third mind-numbing acceptance speech I found myself thinking, “I wonder what this year’s presenters received in their goodie bags?”

The term refers to the gift baskets full of designer-studded sundries that stars receive as a “thank you” for their two minutes (maybe) worth of service in handing out awards. According to government documents, past gifts have included “expensive products and services, including jewelry and electronic items. Some gift bags have been valued over $100,000.”

Hmmm. That works out to $50,000 a minute ... or $3 million an hour — not a bad gig.

The trouble is, Hollywood is a place where secrets remain under wraps only for as long as it takes to dial the producer of Entertainment Tonight. The escalating value of these annual gift bags soon became fodder for talk shows and celebrity magazines.

The cat was completely out of the bag once news of the goodie bag boondoggle went mainstream. In an ironic example of art imitating life, the tradition was immortalized in an episode of “The Sopranos,” in which Tony’s nephew, Christopher, literally decks Lauren Bacall in order to steal her cache of freebies. (To the best of my knowledge, this segment has never been nominated for an award.)

Finally, gift bag values reached such epic proportions the IRS crashed the party.

Last year, the Internal Revenue Service launched what it called “an outreach campaign” to educate the entertainment industry about “the distribution of celebrity gift bags and goodie bags in conjunction with appearances by the stars at award shows and other gatherings.”

The main message was that, as stated in Section 61 of the Tax Code, “gross income means all income from whatever source derived, unless excluded by law.” This includes “income realized in any form, whether in money, property, or services. (Emphasis added.)

In other words, it doesn’t matter that the stars didn’t receive cash for their participation. Under federal law, those goodie baskets represent income, which means recipients should have been declaring it and paying income tax on it.

Playfully explaining this in Hollywood terms, IRS Commissioner Mark Everson said, “There’s no special red-carpet tax loophole for the stars. “

Late last summer the IRS and Academy of Motion Picture Arts and Sciences reached an agreement, with the academy paying back taxes for gift baskets given out through 2005. A similar agreement was reached with the Hollywood Foreign Press Association, sponsor of the Golden Globe Awards. Each sent tax notices to the celebrity presenters who participated in their 2006 ceremonies detailing the value of their “free” gift baskets and informing recipients that they were personally responsible for the taxes due.

To satisfy my curiosity, I decided to follow the IRS’ lead and “reach out” to these two venerable Hollywood organizations. Turns out, the value of each gift basket handed out at the Golden Globe Awards was … zero. Same story for the upcoming Academy Awards.

Like an embarrassingly bad scene in a movie, the concept of goodie bags has been relegated to the cutting room floor. Cancelled. Or, as they say in Tinsel Town: “The End.“

Leslie Unger, spokesperson for the Academy of Motion Picture Arts and Sciences, said the academy voted to discontinue the practice because they “didn’t feel it was appropriate to be thanking people with something that brought with it a tax burden.”

The lesson for all of us as we sort through our records to prepare our 2006 tax returns is that “income” comes in many forms. Here are a few more examples:

*Certain legal damages for personal injury or sickness
*Fringe benefits such as an employer-provided car
*Business gifts worth more than $25
*Discharge from indebtedness

The last item means that if you owe money to a creditor and work off your debt by performing services (for instance, mowing the grass or painting some apartments for a landlord), you’re supposed to report the value of your cancelled debt as income. Or, if a creditor agrees to write off the rest of your debt if, say, you pay 60 percent of what you owe, the remaining 40 percent should be declared as income.*

Remember, Elliott Ness didn’t put Al Capone behind bars based on racketeering charges; he was convicted of tax evasion. And that didn’t just happen in the movies.

Happy 1040 season!

*In general, debts that are cancelled as a result of going through a bankruptcy proceeding do not have to be declared as income.

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.