With the IRS putting the kibosh on tax-free award show swag, celebrities can no longer get their nails painted, hair styled, faces preened and backs massaged without forking over hard-earned cash to Uncle Sam.
Victor Omelczenko, a spokesman for the IRS in the Los Angeles office, warned beauty companies that services are not beyond oversight. “The same rules generally apply to free perks, such as services,” he said. “If the service is not given out of the compassion of one’s heart, the provider must report the fair market value of the services, and the recipient must declare it as income.”
In beauty circles, confusion reigns about the IRS decision to crack down on exorbitant gift-bag goodies. Many of those offering services to celebrities during Emmy festivities this week presume pampering — unlike trips to Hawaii and diamond-studded watches — remains exempt.
Gavin Keilly, an event planner with GBK Productions, was unclear if the IRS was keeping a watch on the beauty giveaways at the GBK-hosted gift suite in the Sofitel Hotel.
“I am assuming that a service like that is not taxable,” he said. “I am advising the celebrities to consult their tax attorneys.”
So far, the IRS has not stopped the beauty gravy train from rolling along, and Keilly said the celebrity swag-grab continues unabated. The gift suite has notched about 80 reservations so far, making it one of GBK’s best Emmy events ever.
Beauty services have become a larger part of the freebie package as companies seek to cultivate celebrity clientele at award shows. The list of companies doling out beauty items at this year’s Emmy Awards includes Frédéric Fekkai, Maybelline New York, Kate Somerville, Bodyography Cosmetics, Victoria’s Secret and Sonya Dakar.
Even in the new era of IRS sensitivity, the parade of treatments and makeovers is not expected to slow. After all, Sonya Dakar Skin, which has expanded its Emmy effort to a full week from one day last year, knows award shows are prime opportunities to bolster a company’s Hollywood credentials.
“When we did Oscars, we had Kristin Cavallari come in, and she has been a regular client ever since,” said Mimi Dakar, a vice president at the company. “We get tons of press and a few regular clients, and I think it is good for overall branding.”
This story first appeared in the August 25, 2006 issue of WWD. Subscribe Today.
But the tax issue does complicate matters. Dakar said some of the services available to celebrities, such as spray tans and makeup applications, are new or different from Sonya Dakar’s everyday fare, making it hard to put a price tag on them. “We are going to just play it by ear and go with the flow,” she said. “If someone down the road needs information, we will go ahead and give them the information.”
As the IRS ruling sinks in, companies undoubtedly will learn to deal with the tax issues. Keilly mentioned that gift certificates could be one answer because a recipient pays taxes only when they are redeemed. Sending gifts only upon request could be another solution.
Britt Johnson, president of Mediaplacement, which is organizing the HBO Luxury Lounge for the Emmy Awards, said swag and services might be toned down, but he was not worried they would disappear completely. “Marketers always want to get their product in the hands of celebs,” he said. “They will find a way.”