Everyone loves free stuff, no matter who they are, and the Oscars give out expensive freebies every year. Perhaps things are more austere this year, as a gift bag for top nominees in the past has been packed and worth $205,000. This year it’s $140,000 of leaner stuff, but it’s still a lot. Take a look inside the six figure loot bag for the nominees. It includes 50 gift items put together by an LA marketing company, Distinctive Assets. They enjoy luxurious travel, delicious snacks, beauty and skincare treatments, and even a Scottish title and a (very small) field of Highland Titles all to themselves. Companies pay promoters to put their gear in gift bags for stars to use, hopefully somewhere on camera. Companies pay a fee to donate the goodies, and contestants get big-ticket items for free. Everyone wants celebrities to show off their gear, so companies naturally write off the cost on their taxes. It’s a legitimate business expense on their taxes, but it’s also worth thinking about the beneficiary side of the equation. Some celebrities refuse freebies, but why would anyone say no to free stuff? One of the reasons is taxes, celebrities have to declare the value of what they receive as income, and taxes can be high.

How can “gifts” be taxed as income? The answer is when they aren’t really gifts. And the big ticket items add up. The highest federal taxes are 37%, although they can increase, and then there is the California tax which reaches 13.3%. For many, the total exceeds 50%, especially since you can only deduct $10,000 in state taxes. In addition to these stellar giveaways, nominees will also receive vouchers for cosmetic procedures, personal training sessions, life coaching and more. There are many more too, and all are taxable even if not provided in cash. In 2006, the Academy stopped officially giving gifts due to IRS scrutiny, so gifts are no longer officially part of the Academy. For years, the entertainment industry and the IRS have opposed the tax treatment of these “gifts.”

Eventually the tax disputes were settled, with loot clearly taxable and celebrities getting IRS 1099 forms. And it’s not just celebrities, so if you get a goody bag you have taxable income equal to its fair market value. Can’t you claim it was a “gift” and therefore not income? In family of course, but not in this context, since these traders do not give them only out of affection or respect. Although the value of these goodies isn’t really a salary, you still have to report it on your tax return. In case any attendees forget, they get an IRS 1099 form pointing that out, and those 1099 forms are the key to your taxes. If you don’t report it, it can be ugly with IRS tax bills and penalties.

How about gift certificates or vouchers for travel or personal services? If you redeem the certificates or vouchers, you include the fair market value of the trip or service on your tax return. If you make a selection in a “free shopping room”, the value of your selection is also income. Still, some celebrities give the bags back or refuse them. They may qualify for a charitable donation deduction if they donate the gift bag to a qualified charity. But the fair market value of donations must still be reported on their tax returns. Vendors distributing gifts issue IRS Forms 1099-MISC. So why don’t celebrities get a 1099 form when they say “thank you, but no thank you?” A 1099 form tags you with income. It can be difficult to sort out when you know your Form 1099 is wrong.

Money can also feature at the Oscars. A few years earlier, Daily Women’s Clothing reported that Meryl Streep canceled a custom Chanel couture creation after the fashion house refused to pay it to wear it to the Oscars. The $105,000 couture dress was already in production when Streep’s team reportedly said, “Don’t continue the dress. We found someone who will pay us.” A representative for Ms Streep denied the claim, saying it was against Ms Streep’s personal ethics to be paid to wear a dress on the red carpet. But pay-to-play stories still crop up from time to time. the Daily Mail once noted that it’s not uncommon for celebrities to make money wearing dresses, jewelry and accessories for major award shows. Some reportedly received up to $250,000 to wear a dress on the red carpet.

Swag or not, if a celebrity gets paid to wear a dress to an event, can they just pocket the money, or is it taxable? Like just about everything else, the IRS gets its share. And while the practice isn’t widely discussed, there’s no doubt that designers who pay the fees should issue stars with an IRS Form 1099 for the fees. IRS 1099 forms are also required for Oscar gift bags. In the past, the Academy of Motion Picture Arts and Sciences has sued Distinctive Assets for promoting goody bags as “official” Oscar loot. The lawsuit claimed that “Distinctive Assets uses the Academy Marks to raise the profile of its ‘gift bags’ and falsely create the impression of association, affiliation, connection, sponsorship and/or endorsement .” The lawsuit was settled out of court. If money was exchanged, the IRS likely received some of it as well, although prosecution fees often depend on the wording of the settlement. This is one of five IRS rules on how lawsuit settlements are imposed.