Beware of giving lavish promotional gifts that have no direct connection to your business. That's the message from a recent clampdown by the Internal Revenue Service that, according to The Wall Street Journal, is behind the Academy of Motion Picture Arts and Sciences' decision not to offer gift bags at this year's Academy Awards and a requirement at last year's Emmys that recipients fill out W-9 forms, complete with Social Security numbers. Some estimate the value of these giveaways to be as much as $30,000 at the Emmys and $100,000 at the Oscars.
Does what happened in Hollywood translate to corporate gift giving in the rest of the world?
Not really, says meetings industry lawyer James Goldberg, a principal in the Washington, D.C., law firm of Goldberg & Associates. “The IRS has gone after these gifts because they're so over the top. They're not going to start going after incentive gifts.
“The other part of this is that the gift bags are unrelated to the awards ceremony — they have nothing to do with the folks who sponsor the Emmys and Oscars,” he adds. “That's a different motivation from incentives, which are related to the business of the gift giver.”
Karen Renk, CAE, executive director of the Incentive Marketing Association, Naperville, Ill., concurs. The IRS pressure, she says, “doesn't signal a crackdown; [it] just illustrates the fact that organizations need to be well-informed and thoughtful about tax implications.”
“Do companies have to report the value of incentive gifts beyond the Christmas turkey? Sure they do,” says Goldberg. “But beyond that, I wouldn't worry about anything for the moment.” The Incentive Marketing Association offers these basics on corporate gift deductibility:
An employer may deduct the cost of employee achievement awards and gifts given to the same employee up to $400 in any given year. Although the employer may deduct this cost, they are not taxable to the employee.
If a gift or award is one of “nominal value,” its cost is excluded from that total. The IRS has not said what constitutes nominal value, but most experts believe that up to $50 is of nominal value, while others believe that figure to be $100.
An incentive gift in the form of a gift certificate that may be converted to cash cannot qualify for preferential tax treatment.