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Sunday, March 2, 2014

A Taxing Oscars: $80,000 Swag Bags, Tax Policy, and Divorce in Blue Jasmine

1.  IRS, Gift Bag Questions and Answers:

OscarQ: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return. ...

Q:  If these are gifts, why do they have to be treated as income?
A:  These gift bags are not gifts for federal income tax purposes because the organizations and merchants who participate in giving the gifts bags do not do so solely out of affection, respect, or similar impulses for the recipients of the gift bags.

Q: Can the recipient take a charitable contribution deduction if he or she contributes the gift bag to charity? 
A: If the gift bag is donated to a qualified charitable organization, the recipient may be able to take a tax deduction for his or her charitable contribution, subject to applicable limitations and requirements. But this does not change the taxability of the value of the items.  The fair market value must still be reported on the celebrity recipient’s federal income tax return.

2.  U.S. News & World Report, And the Winner of the 'Worst Tax Policy' Oscar Is ..., by Matthew Mitchell (George Mason University):

Film subsidies from the government are a waste of money.

TaxProf Blog, The Wolf of Wall Street Wins Oscar for Best Tax Break:

E21

3.  Forbes:  Tax Lessons From Woody Allen's 'Blue Jasmine', by Peter J. Reilly:

Blue JasmineI have just a couple of tips that can greatly reduce post marital stress. They fly in the face of conventional wisdom, but they are based on extensive reading of Tax Court decisions. The recommendations are that you not file a joint return for the final year of the marriage and that non-custodial parents not expect to be able to claim dependency deductions.

The recommendations fly in the face of conventional wisdom, because planners assume that people are rational and want to minimize their aggregate tax liability and will then equitably share the savings. Only in rare circumstances will separate filing produce a lower tax liability. The dependency deduction may be more valuable to a non-custodial parent. So if you are having one of those friendly divorces, my advice might not be applicable to you. Of course there is a term for a couple that can navigate all the complexities of a divorce without the least bit of anger and recrimination and irrationality. The term is “still married”. Since both my recommendations are unconventional, they both merit a bit of discussion. ...

The movie Blue Jasmine might be a better warning on the perils of filing jointly with a financially sketchy spouse. Of course Jasmine’s failure to follow her friend’s advice with regard to joint filing was not her only mistake. There is, however, a strong argument for the more financially sophisticated half of the couple to not ask for a joint return, even though it costs extra taxes.

http://taxprof.typepad.com/taxprof_blog/2014/03/a-taxing.html

Celebrity Tax Lore, Tax | Permalink

Comments

Here's the crucial bit of the IRS advice:
Q: What about non-transferable gift certificates or vouchers for trips or personal services included in gift bags?

A: If the person accepts and redeems the non-transferable certificates or vouchers in the gift bag, the recipient must include the fair market value of the trip or personal service on his or her federal income tax return.

Posted by: Eric Rasmusen | Mar 2, 2014 1:05:30 PM