How much Oscar nominees might owe in taxes if they accepted gift bags

The 94th Academy Awards take place on Sunday, and as Hollywood stars pile into the Dolby Theater in Los Angeles hoping to walk away with an Oscar statuette, 25 of the nominees will receive gift bags worth just over $137,000.

The “Everybody Wins” giveaway bag is distributed by Los Angeles-based Distinctive Assets to the five nominees in each of the four acting categories and to the nominees for “Best Director.” It’s a gift collection that includes everything from gold-infused olive oil to $10,000 in plastic surgery.

But if accepted, it can create a heavy tax burden for beneficiaries.

Gift bags are taxable because they aren’t actually “gifts” that were given “solely out of affection, respect, or similar impulses for the recipients,” according to a dedicated page on the IRS’ bags website. -gifts given to members of the entertainment industry. .

“If you think of it as ‘what is the intention of providing these items, products or services? “It’s obviously the hope that the celebrity will use this product, go on vacation,” Eric Bronnenkant, tax manager at Improvement, tells CNBC Make It. “They try to influence behavior.”

The value of donations is recognized as income on the recipients’ taxes. For high earners in California, as many Hollywood actors are, that can mean a tax rate of over 50%, says Bronnenkant.

The Academy actually stopped handing out gift bags to presenters and performers in 2006 due to IRS scrutiny. “It seemed a little inappropriate to offer a gesture of thanks which was then accompanied by a [tax] obligation,” an Academy spokesperson told CNN in 2006.

Distinctive Assets, however, is not affiliated with the Academy and has been sending gift bags for 20 years. Each of the recipients – which this year includes Will Smith, Penelope Cruz and Olivia Colman – receive a form that founder Lash Fary drafted with a tax attorney explaining that business gifts are taxable and that they should consult their tax attorney about this. topic, Fary told CNBC Do It.

Fary also points out that despite the mind-boggling total value of everything included in the bag, the more valuable gifts must be redeemed by the recipient and are not immediately taxable.

“[Some articles] look like I’m walking around with a briefcase full of $140,000 in cash and handing it to these candidates,” he says. “Actually, $5,000 of that $137,000 [value] These are physical products that they can take away and put in their cupboard or re-gift to their mother or child. The others are invitations or offers that have no taxable consequences and no real value unless they redeem them.”

This year, the most expensive offer is an all-expenses-paid trip to Turin Castle in Scotland. Guests who accept the offer will have full access to the 17th-century castle, complete with butler service and a bagpiper welcome upon arrival. The value of the three night stay is $50,000.

“Let’s say Will Smith isn’t going on a trip. Her bag isn’t worth $137,000; it’s worth $137,000 minus $50,000,” Fary says. “If he doesn’t go to Porte Dorée, it’s another $15,000 off. And if he doesn’t use Maison Construction’s home improvement services, it’s another $25,000 off.”

Fary says that in the 20 years he’s given gift baskets to Oscar nominees, no one has ever made the most of them.

“A lot of trips have been reimbursed, but no one has ever reimbursed everything,” says Fary.

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