An Inconvenient Truth: "Green" Replacement for Oscar Gift Bags Poses Tax Problems for Academy and Hollywood Stars

After multiple posts (collected here) on the tax consequences of the gift bags given to celebrities at the Oscars, I can't resist the new tax wrinkle posed by Sunday night's show:

From the New York Post:

Hollywood's wealthy liberals can now avoid any guilt they might feel for consuming so much non-renewable fossil fuel in their private jets, their SUVs, and their multiple air-conditioned mansions. This year's Oscar goodie bag contained gift certificates representing 100,000 pounds of greenhouse gas reductions from TerraPass, which describes itself as a "carbon offset retailer." The 100,000 pounds "are enough to balance out an average year in the life of an Academy Award presenter," a press release from TerraPass asserts. "For example, 100,000 pounds is the total amount of carbon dioxide created by 20,000 miles of driving, 40,000 miles on commercial airlines, 20 hours in a private jet and a large house in Los Angeles. The greenhouse gas reductions will be accomplished through TerraPass' [program] of verified wind energy, cow power [collecting methane from manure] and efficiency projects." Voila, guilt-free consumption! It reminds us of the era when rich Catholics paid the church for "dispensations" that would shorten their terms in Purgatory.

TerraPass has more details on its blog:

As the value of the gift bags — stuffed with offers of exotic vacations, jewelry, cars, and the like — approached $100,000, the IRS took notice as well.

The Academy decided this year to get rid of the gift bags. They had outlived their usefulness as a means of expressing gratitude — nothing says thank you like a massive tax bill.

This is where TerraPass comes in. Looking for a more restrained token of appreciation in keeping with the spirit of the evening, the Academy decided to give each presenter and performer a year of carbon neutral living. The gift consists of a glass sculpture from designer Simon Pearce and 100,000 lbs of CO2 reductions from TerraPass.

Carter Wood notes that the Academy may have generated a tax problem for itself and for the recipeints since the value of the green replacement for the gift bags may well exceed the $600 information return threshold:

The Simon Pearce sculpture retails for $650 (although that price includes 30 metric tons of carbon dioxide reductions), and TerraPass sells 20,000 lbs. of CO2 reductions for $79.95, so 100,000 lbs. would go for $399.75. We're not accountants, but that combination looks taxable to us.

Perhaps the IRS will update its Gift Bag Questions and Answers page to address the tax consequences of the receipt of the sculpture and carbon certificates.

Update:  Adam Stein, a co-founder of TerraPass, comments that the Academy planned around any tax problems:

The Academy was very well aware of the $600 gift limit. The total cost of the sculpture and carbon came to $575 per recipient. As you note, the sculpture retails for $650. You'd have to raise the price to about $785 if you also wanted the full 100,000 lbs of CO2 reductions. This figure is close to what the Academy paid, but is obviously a bit higher. Why the discrepancy? The answer is probably pretty obvious, but you always get a better deal on something when you buy wholesale in bulk. If you're in the market for 100 glass sculptures and 10 million lbs of CO2, please give us a call. I'm sure we can work something out.

No word on how the various stars plan to report the transaction.