Sundance: 'Free' swag may get a price tag
PARK CITY- During the Sundance Film Festival, this town's old fashioned Main Street is jammed with filmmakers, actors, entourages, publicists and gawkers.
Someday, that crowd may include a few IRS agents.
Main Street is the epicenter of celebrity "gifting," where famous people and other influencers of culture pop into private suites to relax and grab bags of free goodies from companies wanting stars to use what they sell.
That's why celebrities such as Winona Ryder, Teri Hatcher and Nick Cannon gather parkas, jewelry, jeans and vacation packages - all free. The practice goes by several names - "swag," "hospitality," ''complimentary shopping" - but according to the IRS, it's called income.
Last year, the IRS launched a campaign to "educate" celebrities and givers about its definition of those freebies. They're not gifts, it said. They're taxable compensation for indirect advertising.
According to IRS guidelines: "These gift bags are not gifts for federal income tax purposes because the organizations and merchants who participate in giving the gift bags do not do so solely out of affection, respect or similar impulses for the recipients."
The IRS is not actively enforcing the rules, which may be one reason the number of corporate giving hotspots - which aren't official Sundance sponsors - is as great as ever. No one seemed to be filling out tax forms.
It's hard to know who is getting what - and whether they follow the rules. Actor Matthew Lillard (possibly best known for starring as Shaggy in "Scooby Doo") is in town to promote "What Love Is," a new film not associated with Sundance. When he was approached Wednesday by reporters in one lounge, he said, "I have no swag," then shrugged and said "I don't know" when asked if he planned to report gifts to the IRS.
After grabbing a headset from a Plantronics accessories display and sticking it in a bag held by his assistant, he said: "You didn't see this."
Companies that give items worth more than $600 are supposed to report it to the IRS as miscellaneous income. The Academy of Motion Picture Arts and Sciences agreed to pay back taxes on goodie bags it gave to presenters at previous years' Academy Awards ceremonies and said it will give recipients tax information on this year's bags. The Hollywood Foreign Press Association, which awards the Golden Globes, said no bags would be given away after this year. Its stated value for this year's goodies was $600; last year's was more than $20,000.
What celebrities might not know is that they, like all taxpayers, are legally responsible for reporting this as income, even if it's worth less than $600 - whether the giver sends a 1099 or not. Anything more than "de minimus" (little or no) value must be added to taxable income, said IRS spokesman Bill Brunson. So lip balm, chocolates and caps are probably exempt, but parkas are not. The fair market value of the items must be included on tax returns as income.
Suite organizers say because each company represented usually gives items worth less than $600, they don't have to keep track of much of what they give. "If someone came in and wanted a $650 watch, we'd say, 'You're welcome to take it. You'll just have to claim it,'" said Chris Harris, whose WOW Creations company sets up suites at such events as the Emmys and the Bob Hope Classic as well as Sundance.
Sundance officials say they've seen a decline in swag this year, partly because of the festival's "Focus on Film" campaign, trying to turn attention away from celebrity and back toward the festival and its sponsors. Organizers are encouraging filmmakers and festivalgoers to avoid gift lodges and watch a movie instead.
"The other companies that come and ride on the backs of us are really hurting the festival," said Elizabeth Daly, director of strategic marketing. "We're a nonprofit, and if they can't be here officially, they really shouldn't be here at all."
The Sundance program includes information about sponsor venues set up by companies like Volkswagen, AOL and Turning Leaf Vineyards, which contribute money and services to help pay for the festival. Unlike the hospitality suites set up by non-sponsors, the official venues are open to the public.
Those who give to celebrities say in an era where people don't pay much attention to traditional advertising but are obsessed with fame, it's the best way to get the word out about their products. Haley McDonald is a Park City resident who just started Ol' Dan & Lil' Ann, a company that makes dog shampoo. She doesn't have a lot of money for advertising, and she's not sure how to best reach the national demographic she wants. So she signed on with WOW creations and gave small sample bottles to celebrities who stopped by.
"For the small business owner, it's really hard to figure out how to spend your advertising dollar," she said. "I name it the necessary evil. You have to make sure you're getting it into the right hands."
Some hospitality suites have areas where recipients can donate swag to charity - a practice the companies don't mind because they get mentioned twice - once when items are given to celebrities and again when celebrities give them away. Others collect autographs to auction for charity.
The Philips Lounge at Village at the Lift, for example, is raising money for Operation Smile and encouraging celebrities to swap incandescent bulbs for energy-saving compact fluorescent lights. The Ice Lounge, sponsored by The North Face and other companies, is donating money to The Conservation Fund to plant thousands of trees in nature preserves.
"We saw there was a great opportunity to take advantage of what was going on here," said LeAnn Boucher, a spokeswoman for Philips.
The cycle of celebrity gifts would end if the public stopped caring so much about the details of celebrities' lives - but that's not going to happen, Harris of WOW Creations said. "Gifting has been going on in Hollywood since Clark Gable got a free Deusenberg," he said.
* $500 jackets by Blue Genes
* Polaroid digital cameras
* AG jeans
* Lia Sophia jewelry (entire collection valued at $7,000)
* Lacoste clothing
* Gift certificates for Restylane wrinkle treatments ($300 to $850 per injection)