Why Isn't the IRS Taxing Celebs for Freebies Like Sports Tickets?

A few years back the IRS realized that celebrity gift bags handed out at Awards Show (Oscars, Emmys, Grammys, etc.) were really untaxed compensation, so they started 1099-ing those bold-faced names for the goodies they grabbed as they hoofed it up the red carpet.

This was the statement from the government's own website on 'the day the goodie bag died.'

March 3, 2006

WASHINGTON – The Commissioner of the Internal Revenue Service today wished the Academy Award nominees the best of luck at Sunday’s presentation, but he reminded celebrity recipients of the six-figure goodie bags that they qualify as taxable income and must be reported on tax returns.

“As the world watches the glamour and glitz of the Academy Awards, it’s important to keep in mind that movie stars face the same tax obligations as ordinary Americans,” said IRS Commissioner Mark W. Everson. “We want to make sure the stars ‘walk the line’ when it comes to these goodie bags.”

Handing out of celebrity gift bags and goodie bags has become increasingly commonplace. News reports about the “official” Oscar gifts that will be given to stars place the value at more than $100,000.

“This has become big business for companies promoting their products. These things aren’t given without pride and prejudice. There is a tax implication for them. We just want to make sure no one crashes into the tax code,” Everson said.

But 'goodie bags' are not the only perk regularly offered to celebrities. What about tickets to sporting events where those bold-faced names are so often seen mugging for the cameras during time outs?

The New York Post reports that Madison Square Garden admittedly reserves more than twenty of primo these seats for famous faces. But MSG doesn't sell those seats to celebs, they give them away. Courtside seats at the NY Knicks games have a price tag of $3000 each (next season that price increases to $3600 per game).

Stars sitting courtside at NBA games adds to a team's entertainment street cred. It's marketing and promotion for the team, kind of like paying for a celebrity endorsement. So why aren't tickets to games considered taxable income like 'goodie bags?'

Considering the total dollar amount, this may be a source for substantial tax revenue.

20 seats x $3000 = $60,000 taxable dollar value per game x 46 home games per team = $2,760,000

Based on just the New York Knicks and those twenty seats per game, the IRS is missing out on approximately $966,000 in federal income tax annually. NY State and the city may also be interested in getting their slice of the pie here.  Additionally, cities like Los Angeles, Chicago, and Miami might also offer considerable tax revenue from the courtside courtesy tickets they provide in exchange for celebrity good will.

And that's just the NBA.