My chronicle of how the IRS and Tax Court affect taxpayers' daily lives.

See below for important disclosures.

Sunday, September 13, 2009

Taxation of Celebrity and Presenter Gifts

My wife and I stayed up late tonight to watch MTV's Video Music Awards.  I got to thinking about some articles that I read a few years back about all the swag that tpresenters get for participating.  All of their swag is considered taxable, though it is difficult to gauge the value. (More after the cut).
The IRS includes anything in income that is considered an "ascention to wealth," or  "found treasure."  An agressive interpretation of tax law would consider these gifts to be in exchange for labor, and therefore subject to self-employment tax.  Examples of swag include:
The presenters now have to put some value on these items and give the recipient a 1099 for the value of the swag.  The recipient can take a discount for the FMV that is on the 1099, depending on what s/he does with the items.  For example, if the celebrity turns around and sells the item for $500, but the value included in the 10000 is $1,000, there is an obvious discrepancy between the perception of the fair market value, and the true fair market value. 

Many recipients donate their items to charities.  In that case, the celebrity would have to include the FMV of the item in income on Line 21 of Form 1040 and then claim a charitable contribution to offset the income.  This treatment can result in a limited or reduced deduction due to the itemized deduction reduction or AGI limitation of charitable contributions. 

If you are a celebrity and need tax advice, what are you doing trying to find it on a blog?  If you really need help, feel free to call me.  I probably won't believe that you are who you say you are, but try it anyway!

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Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

For official comments, please e-mail NAEA Director of Communications at mlockwood@naea.org or Arizona Society president stefaniecampbell@aztaxpros.org.

IRS CIRCULAR 230 DISCLOSURE:
"To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment). In addition, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS. This communication is intended solely for the person to whom it is addressed; no one else should rely on the tax advice provided herein. The person to whom this advice is addressed is under no obligation to keep the advice or matters related to the advice confidential."