Last Sunday was the movie industry’s biggest night. Of course movie buffs and casual fans alike were interested in who wore what on the red carpet, who won awards and how long the show was overall.
But while the show itself may have captivated audiences, the IRS is probably more interested in the gift bags given out before the show. Also known “swag” bags, the nominees for Academy awards are given bags that contain various gifts that are only given to such an influential purchasing crowd. The thought behind swag bags is that if product makers can make an impression on movie stars, they are more likely to establish themselves in the marketplace.
Swag bags are reportedly worth hundreds of thousands of dollars. While movie fans may be amazed by what may come in these bags, they may not be so enamored with the tax bill that comes with them. Under the tax code, and after a great deal of litigation, swag bags are now considered taxable income. This means that the provider of the bags must produce a 1099 form to document the value of the bag. Also, the recipient must report the value of the gifts on their tax returns.
But the ultimate question is, if you are given a gift, why should the IRS consider it income? After all, a gift isn’t necessarily contracted for as part of the nominee’s agreement with the movie studio. Regardless, the IRS does not see it this way, and after years of litigation, a compromise was reached between the Academy and the government.