California Apparel News

The days of the celebrity gift bag may be numbered.

The Internal Revenue Service has been clamping down on the entertainment industry and has recently clarified that the gift bags presented at awards shows and other events are now taxable income. That may hinder the marketing efforts of many apparel companies who are big contributors to these goodie bags and rely on them to get their products on celebrities.

Already the Academy of Motion Picture Arts & Sciences and the Hollywood Foreign Press Association, which stage the Oscars and Golden Globes awards, respectively, have discontinued distributing gift bags at this year’s events.

After seeing the doling out of gift bags grow from a thank-you gesture to a multimillion dollar product-placement business, the IRS recently clarified that the gifts should be declared as taxable income and called on the parties giving the gifts to issue 1099 forms to the recipients.

Last year, the tax agency launched an outreach campaign aimed at the entertainment industry and the gift bags, which over the years have been growing more lucrative, containing luxurious trips, expensive jewelry, iPods, cell phones and other trinkets, valued at as much as $100,000.

IRS Commissioner Mark W. Everson said of the recent decisions that “there are no redcarpet loopholes for the stars.”

Both the producers of the Oscars and Golden Globes made undisclosed settlements with the IRS for gift bags distributed going back to 2004.

The Recording Academy, producers of the 49th Annual Grammy Awards, scheduled for Feb. 11 at the Staples Center in Los Angeles, will distribute gift bags. The company responsible for putting the bags together, Distinctive Assets LLC of Los Angeles, is mounting a campaign against the recent decisions.

Founder Lash Fary, in response to the recent actions, said the value exchange between the parties involved is up to interpretation.

“Celebrities aren’t really getting ’free’ product. There is a clear cost to them in terms of the use of their name and likeness to subsequently promote the products being gifted. Which is precisely the reason that marketing giants like Nike, Apple, Coach,Heineken, Caesars Palace, Tumi and Avon continue to take advantage of celebrity placement and celebrity gifting. They understand the basic math that giving Hilary Duff a T-shirt that she wears in a photo that appears in Us Weekly or People translates into retail sales and an elevated perceived product value that far outweighs the price tag hanging from the garment,” he said in a statement.

Karen Wood, president of Santa Monica, Calif.–based Backstage Creations, does not see the IRS actions affecting her business much. The company brings celebrities and product companies together backstage at award events as a way of placing product and getting publicity shots of celebs wearing their clients’ clothes.

“We’ve been watching this situation closely, and I don’t see it affecting the industry in a big way. We just did the Billboard Awards and were in Park City for the [Sundance] Film Festival. Business has been good,” she said.

Lindsay Kelterer vice president of corporate communications for Distinctive Assets said the gift bags for performers and presenters at the Grammy Awards will be stuffed with apparel, sports-club memberships and other goods. For some, the bags could be filled with opportunity.

“Getting a celebrity shot in US Weekly or something could be worth thousands and thousands,” said Kelterer.

Stephen Seal, president of Ottawa, Canada–based Sealtex, got his company’s Urban Tool iPod/cell phone holster placed in this year’s Grammy goody bags as a promotional vehicle to launch distribution of the product in the United States. He hopes gift bags don’t go away.

“So far, it’s created a lot of buzz these past 48 hours,” he said.