As the sharing economy continues to grow, so do the associated tax problems.
The Internal Revenue Service obviously is interested in folks who earn money using their autos as on-call car services or rent their homes to out-of-towners.
Money collected for special projects via crowdsourcing sites also is generally viewed by Uncle Sam as taxable income, regardless of whether it's for a movie (yay Veronica Mars) or potato salad.
Then there are the contributions to help out folks in need.
No tax break for donors: Setting up online money-collection sites to help out folks who've encountered a catastrophe is today's equivalent to the donation jar at the neighborhood grocery.
Just that those dollars, since the crowd funding money is given directly to the individuals, not to IRS-approved 501(c)(3) organizations that pass it along, tax laws regarding charitable gifts say that the donors can't deduct the gifts as itemized tax deductions.
And, so the reasoning goes, the folks getting the cash don't have any tax worries either. The Internal Revenue Code says that gifts are not taxable income to the recipients.
But taxable income? That's why Casey Charf is confused, and upset, by the $19,000 tax bill she got from the IRS in connection with donations made via GoFundMe to cover her medical expenses.
In March 2013, Casey was in a major car crash. She survived those serious injuries, but in during treatment doctors also discovered she had several cancerous tumors. Casey's sister, Courtney, set up the online GoFundMe account "Caseys Cure" to raise money for the family's growing medical costs.
To date, the crowdsourcing effort has collected $50,000.
And now the IRS wants more than $19,000 of the money.
Fighting the tax bill: The tax agency sent the Charfs a notice that the amount they’d collected through the GoFundMe account should have been claimed as income.
The notice, according to a report by KETV in Omaha (where the family lives), says $15,457 is for back taxes, with another $3,676 due in penalties and interest.
"We've already used that money for my doctors' bills and everything that I've needed," Casey told the television station. "It's donations, it's not income. So how can they tax you on that? I don't get it."
A notice on the GoFundMe Website underscores Casey's characterization of the money. It says (emphasis mine):
Unfortunately, we're unable to provide specific tax advice since everyone's situation is different. While this is no means a guarantee, most donations on GoFundMe are simply considered to be "personal gifts" which are not taxed as income in the US. Additionally, only donations made to a legally registered non-profit or charity may be considered eligible for donors to claim as a tax deduction. Again, every situation is different so please consult with a tax professional in your area. Most donations on GoFundMe are considered to be "personal gifts," which are not taxed as income in the U.S.
Of course, the key phrases are "everyone's situation is different" and "please consult with a tax professional." In that last bit of advice, you should do so before setting up a crowdfunding account so that it's clear to the IRS who's getting the money and for what purposes.
The Charfs are appealing the IRS tax bill. Several local tax professionals in the Omaha area believe they have a good case.
We'll be watching to see if the Charfs can convince the IRS that they don't owe any taxes on the money they got from online donors.
We'll also be keeping an eye on whether this case might prompt the IRS to issue clarifying regulations on the treatment of crowdfunding money.
What say you, ol' blog readers and tax pros? Was the IRS correct in sending the bill on the donated funds?
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