Update on Swag Bags and the IRS

bag.jpgRandi Schmelzer’s piece in PR Week (link for subscribers) on the IRS’ position that “swag bags” are taxable straightens out some of my own confusion in the previous post on this topic. The IRS has determined that the swag baskets are not gifts, and that is why they will be taxed from now on. From Schmelzer’s story:

If any organization is truly benefiting from this news, however, it’s the IRS. Focusing on both recipient reporting and the filing of Form 1099 by merchandise providers, the IRS’ outreach program includes letters to entertainment industry groups and tax professionals, an online FAQ, and plenty of media relations, according to Nancy Mathis, a DC-based public affairs specialist at the IRS.

“Any individual’s requirement is to pay tax on income,” she said. “You are not required to pay taxes on gifts, [but] our position is that these… are items given with the expectation of something in return, that use by a celebrity will enhance sales, and the products themselves serve as compensation.”

Okay, I’m a celebrity, and I get a gift basket that has some items in it I wouldn’t be caught dead using. Can I return them so I won’t have to pay taxes on them? And, if am given an item I don’t want, can I avoid taxes by declaring that I un-endorse it? “Hi, I’m a celebrity, and for the record, I never wear Axe body spray. The gallon of Axe body spray I was given in a swag bag went straight down the kitchen sink.”

Schmelzer’s piece includes quotes from PR firms whose business is focused heavily on filling these bags with swag:

Everyone is talking about it,” said Kari Feinstein, whose eponymous PR firm organizes brand, charity, and Young Hollywood-melding “style lounges.” “Even the guy at the car wash asked me about it.”

General consensus among celebrity gift-oriented firms is that while there is reason to proceed with caution, the demise of swag may be greatly exaggerated.

Feinstein said brands want to be in touch with stars, and vice versa. “That [won’t] stop,” she added. “It’s too beneficial.”

“The whole intersection between Hollywood Boulevard and Madison Avenue isn’t going away,” added Lash Fary, founder of LA-based entertainment marketing firm Distinctive Assets. “It’s too important to the brands I work with.”

It might be important to the brands, but the key question is: Is it important enough to the celebrities to go through the hassle and expense of taking these products home? Celebrities are smart enough to understand that they help sell the products, but if you make it hard for them, why would they bother?

The art of real-life product placement is that you slip these products into celebrity hands stealthily, and then make sure someone else sees it, hears about it and photographs it. The celeb is working for you, and it’s only costing you the wholesale price of the item you gave them. If it’s costing the celebrity? Seems like that changes the dynamic, and puts us back in the world of paid endorsement contracts. But maybe the PR pros who specialize in this business are more creative than me.


2 thoughts on “Update on Swag Bags and the IRS

  1. Ooops, I take back my earlier post (on the Tower Records thread)about getting free records as a disc jockey. Never happened. And I never sold them. My memory must have failed me.

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