The Internal Revenue Service announced the beginning of an outreach campaign to the entertainment industry regarding the taxability of gift bags and promotional items. The effort follows an agreement the tax agency and the Academy of Motion Picture Arts and Sciences.

The academy had approached the IRS shortly after this year's Academy Awards ceremony, looking to clarify the tax issues surrounding gift baskets, and to ensure that any obligations for the prior years were met. Under the agreement, the academy and the IRS settled any tax obligations on gift bags given through 2005. Recipients of this year's bags -- typically given as a thank you to award presenters -- will be issued informational tax forms by the academy and will be responsible for satisfying their income tax obligations.

"We appreciate the academy's leadership on this issue," said IRS Commissioner Mark W. Everson, in a statement. "The gift basket industry has exploded, and it's important that the groups running these events keep in mind the tax consequences."

Academy president Sid Ganis said in a statement that the practice of thanking presenters and performers with baskets well established by the early 1970s. Over time the gifts became more elaborate as hotels, resorts and high-end clothing lines vied to associate their services and products with Hollywood's most famous names. In April, the Academy Board of Governors voted to discontinue the practice of thanking Academy Awards presenters and performers with gift baskets.

Publicity about the gift baskets led Everson to issue a press release three days before the 2006 broadcast which said that "movie stars face the same tax obligations as ordinary Americans."

"The commissioner worked some movie titles into his reminder that gave it a humorous spin, but the basic message was clear: the contents of the baskets, however much we may have been inclined to view them as mannerly thank-yous, in fact constitute taxable income," Ganis said.

The IRS will be contacting entertainment industry groups and others to focus attention on tax guidelines for gift bags and other promotional items.

Previously on WebCPA:

Inside Views: Picture Perfect Press Releases (March 8, 2006)

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