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IRS And Hollywood Reach Agreement Over Taxation Of Gift Bags

by Mike Godfrey,, Washington

15 January 2007

The Hollywood Foreign Press Association (HFPA) and the US Internal Revenue Service have announced that they have reached a mutually satisfactory agreement that will resolve outstanding tax responsibilities with respect to award ceremony gift boxes.

The HFPA voluntarily approached the IRS last year seeking to clarify the tax issues surrounding the gift boxes, as well as to ensure that any obligations for the prior years were met. Under the closing agreement, the HFPA and the IRS have settled the tax obligations with respect to presenter boxes given through 2005. The HFPA will issue appropriate informational tax forms to recipients of 2006 boxes, who will be responsible for satisfying their income tax obligations, and beginning with 2007, the HFPA has ceased giving presenter boxes.

“We appreciate the Hollywood Foreign Press Association coming forward to resolve this issue,” IRS Commissioner Mark W. Everson said. “We’re pleased that the groups holding award ceremonies are keeping in mind the tax consequences of gift bags and other promotional items.”

Last year, the IRS started an outreach campaign aimed at the entertainment industry. This effort focused on distribution of celebrity gift bags and presenter boxes in conjunction with appearances by the stars at award shows and other gatherings. Such bags can include luxury trips, jewelry and electronics. Dozens of the award shows take place each year.

"We are pleased to have reached an agreement with the IRS," said Philip Berk, HFPA president. "We thought it only proper that we assume the tax burden for 2004 and 2005; we felt it didn't seem fair to ask those who had donated their services to pay additional tax after they had already filed tax returns for those years."

Since August, the IRS has contacted entertainment industry groups and others to focus attention on tax guidelines for gift bags and other promotional items. The 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.

According to the IRS, the outreach provides an opportunity for taxpayers, businesses and tax professionals to better understand their tax obligations as it relates to these luxury goods and services and the associated tax implications. The outreach effort is also aimed at keeping entertainers, organizations and others in this area in compliance with the tax law.

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