The 94th Academy Awards ceremony will take place on Sunday, and while Hollywood A-listers flock to the Dolby Theater in Los Angeles in hopes of stepping out with an Oscar, 25 of those won Nominees will receive a gift bag worth more than $137,000.
The “Everybody Wins” gift bag was distributed by LA-based Distinctive Assets to five nominees in each of the four acting categories and a nomination for “Best Director.” It’s a gift collection that includes everything from gilded olive oil to $10,000 worth of plastic surgery.
But if accepted, it could create a huge tax burden for the recipient.
Gift bags are taxed because they are not really a “gift” given “just out of affection, respect, or similar impulses to the recipient,” according to a. dedicated page on the IRS website for gift bags for members of the entertainment industry.
“If you think of it as ‘what is the purpose of providing those items, products or services?’, obviously it’s the hope that the celebrity will use that product, go on vacation. there,” Eric Bronnenkant, head of tax at Betterment, told CNBC Make It. “They’re trying to influence behavior.”
The value of the gift is calculated as the recipient’s tax income. For California high earners, like many Hollywood actors, that could mean tax rates above 50%, Bronnenkant said.
The Academy actually stopped giving out gift bags to presenters and performers in 2006 due to IRS scrutiny. “It seems a bit inappropriate to give a thank you gesture and then carry it [tax] obligation”, the Academy spokesman told CNN in 2006.
However, Special Property is not affiliated with the Academy and has been sending gift bags for 20 years. Each recipient – which this year including Will Smith, Penelope Cruz and Olivia Colman — received a form founder Lash Fary wrote with a tax attorney explaining that business gifts are taxable and that they should consult their tax professional about it, Fary tells CNBC Make It.
Fary also points out that while the total value of everything in the bag is impressive, the most valuable gifts need to be redeemed by the recipient and not immediately taxable.
“[Some articles] make it feel like I’m walking around with a briefcase full of $140,000 in cash and give it to these nominees,” he said. Actually $5,000 of that $137,000 [value] is a physical product that they can take out and put in a cupboard or as a gift back to their mother or child. The rest are offers or offers that have no taxable consequences and have no real value unless they redeem it. ”
This year, the most expensive gift was a trip to Turin Castle in Scotland paid for in full. Guests who accept the offer will enjoy full access to the 17th-century castle, complete with butler service and pickpockets that greet them on arrival. The value of a three-night stay is $50,000.
“Assume that Will Smith isn’t on the trip. His bag isn’t worth $137,000; it’s worth $137,000 minus $50,000,” Fary said. “If he doesn’t go to the Golden Door, that’s another $15,000 discount. And if he doesn’t use home repair services from Maison Construction, that’s another $25,000 discount.”
Fary says that in the 20 years he’s given gift baskets to Oscar nominees, no one has ever received the full value of one.
“A lot of trips have been redeemed, but no one has ever redeemed every single one,” says Fary.
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