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when MAP relief may be desired, it is and meals and a series of free or dis- website an informal FAQ finding that
critical that taxpayers and their advis- counted items and services related to the the products and services claimed by the
ers carefully think through timing and product they are being asked to market. presenters were taxable as income and
procedural issues to ensure that effective But that could establish a relationship were not gifts, because “the organiza-
relief is not imperiled. involving the receipt of compensation tions and merchants who participate
From Thomas Bettge, J.D., Wash- for services, and so the issue arises of in giving the gifts bags do not do so
ington, D.C., and Theresa Kolish, J.D., whether and when these “freebies” or solely out of affection, respect, or similar
LL.M., San Francisco discounts result in taxable income to the impulses for the recipients of the gift
influencer and possible limitations on bags” (see IRS, Gift Bag Questions
deductions for the related expenses. and Answers; Duberstein, 363 U.S. 278
Gross Income The typical service contract with an (1960)). Notably, the FAQs found that
influencer creates an independent con- with respect to items like gift certificates
‘Swag bags’ are back: tractor relationship — the service recipi- and vouchers, an individual was taxable
Influencers and noncash ent is requesting specific services, such only to the extent the individual used
compensation as presence at specified events or a mini- those items, and similarly, with respect

With the growth of “influencer” culture mum number of social media postings, to a “free shopping room,” an individual
has come increased sophistication in but is not directing and controlling the was taxable only to the extent of the
companies’ use of influencers as part influencer in his or her production. To individual’s selected items. This would
of an overall marketing strategy. This the extent the influencer is being paid seem to address any potential construc-
has now moved beyond extending an in cash for these services, this generally tive receipt issues, although the FAQs
invitation and free pass to an event to would be taxable compensation subject are not explicit about the analysis of
more extensive and explicit contractual to reporting on a Form 1099-NEC, the issue.
obligations involving required presence Nonemployee Compensation. But, often, This gift bag analysis would seem to
and responsibilities at events, minimum an influencer is “paid” in ways other than apply to the items or services provided
numbers of social media postings show- cash and often with the expectation (at to an influencer, especially if the items
casing or mentioning a product, man- least of the influencer) that these ben- or services are provided as part of a
datory interviews, and other duties as efits will not be taxed. contractual obligation, in that the items
part of the expanding universe of social Several years ago, the IRS engaged in or services are not provided “solely out
media marketing possibilities. And in some back and forth on the issue of gift of affection, respect, or similar impulses.”
return, influencers often receive little or bags provided to presenters at awards And when specific services are outlined
no cash but rather some combination of shows, commonly referred to as “swag that the influencer must provide to earn
access to events involving entertainment bags.” Ultimately, the IRS posted on its the items or services, then the taxable
income has been identified as compen-
satory in nature.
This then requires analysis of
whether some or all of the items or ser-
vices provided to the influencer may be
excludable from income. The exclusions
under Sec. 132 for working condition
fringe benefits and de minimis fringe
benefits may be applied to independent
contractors. This is particularly relevant
to travel and lodging expense reimburse-
ments provided to an influencer, which
will require substantiation of expenses
similar to an accountable plan (see Regs.
Sec. 1.132-5(a)(1)(v)). In addition, cer-
tain meal and entertainment expenses PHOTO BY ALEXSECRET/ISTOCK
may be excludable from income but
will be subject to the deduction limita-
tions of Sec. 274, including the general

18 June 2022 The Tax Adviser