The Internal Revenue Service announced that it has reached an agreement with the Hollywood Foreign Press Association to settle the pesky problem that is the taxing of exborbitant celebrity gift baskets.

The association, which will present the 64th Annual Golden Globe Awards on Monday, has decided to forgo the traditional gift baskets for presenters. In its deal with the IRS, the group will take care of the back taxes for all gifts handed out until 2005 and provide celebrities who received baskets in 2006 with the appropriate informational income tax forms. The recipients will then be responsible for satisfying their income tax obligations.

The 2006 bag, filled with electronics, jewelry, spa certificates, trip vouchers and more, was valued at $40,000. Because vendors generally write off the celebrity swag as the cost of doing business (for example, as an advertising expense), the IRS does not recognize the baskets as gifts. And because celebrities typically receive the baskets in exchange for appearing at an event, the IRS can classify the basket’s contents as taxable income.

Last September, the HFPA voted to discontinue the practice of thanking presenters with the gift bags. Instead, everyone who attends the Golden Globes next week will receive a no-taxes-required gift package worth $600.

The IRS said the association voluntarily approached the agency last year after the IRS began contacting entertainment industry groups and others to focus attention on tax guidelines for gift bags and other promotional items. The IRS effort is concentrated on two main areas:

  • Reporting compliance by the stars and other recipients receiving the items; and,
  • Completion of Form 1099s as appropriate by those providing the items to the stars and other recipients.

The IRS reached a similar settlement with the Academy of Motion Picture Arts and Sciences, which awards the Oscars, in August 2006.

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