Cancer survivor gets $19,000 tax bill for GoFundMe donations
Monday, April 27, 2015
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?
You also might find these items of interest:
1. She didn't set it up to collect the money herself, therefore it had to be "gifted"/transferred to her-you can only gift $14,000 per person per tax year. The rules also say you get a tax form at $20K
2. It could have been avoided-had the person who created the GoFundMe took the funds and paid the hospital bills directly. Payments aka "gifts" paid directly to student loan lenders, medical bills paid directly to the hospital can exceed the $14,000 per person, per year gift allotment and avoid tax.
Posted by: MNS | Monday, April 25, 2016 at 12:00 PM
Clearly Gofundme acts as a bank or broker for money, yes that could be very scandalous and it sends up red flags to the government in many ways, but the IRS needs to get their act together and we need to all pray and support those with medical and catastrophic needs. Just because the government does not like to pay out they should not be allowed to take away at every whim that goes by them. What needs to happen is a white house petition along with everyone writing to the head of the IRS and appeal to Mr. Koskinen on him being involved while serving as President of the U.S. Soccer Foundation,and how he can understand how all those kiddies playing get hurt he should then understand the American need in dealing with with medical bills or any catastrophic need and getting help not taxed for the need. I for one have huge dental bills coming in along with travel due to on going illness for years and none of it is covered by insurance. I have straightened all my bills out but there is no money for this, both dh and I are disabled and trying to finish raising our family. Here are legitimate links to write to complain and also to get more information.
Also read for ideas on crowdfunding here-great tips and information
Posted by: Ana Churches | Thursday, March 31, 2016 at 05:25 PM
Donating some of our own plenty to a good cause out of the kindness of our hearts is a BASIC human moral behavior and should not be PUNISHED by the government that WE ultimately create and are responsible for continuing.
If our current laws do not protect the recipients of this money, we need lawmakers who can figure out how to protect them. Hopefully, this family is protected. It sounds like some folks think they might be. I really hope that is true.
I do know that our current laws do not provide any relief for the donors and I think that should definitely be changed. Any cash gift of $100 or more to someone who needs it for medical or basic living expenses should be tax deductible to the donors and there should not be some huge burden of proof for recipients to prove they need it. And yes, attempting to get 501c3 status is a huge burden for most. I don't even think it would be granted in the case of private needs, anyway!
We should ENCOURAGE people to give to others to help them out. People see horrible things around them all the time that have have happened and not everyone is inspired to help others but I do know that when people are generous and kind (the donors) or just trying to survive (the recipients), their government should reward them and not punish them.
Posted by: Elaina | Friday, February 12, 2016 at 11:11 AM
As you are aware the law is written under the interpretation of the user, The IRS should want to tread easy on this topic because it could open far more loop holes then what it is worth in collecting in taxes. There are several issues and problems with trying to collect taxes on this money. Each donor in this case would be allowed to gift the money 14K a year under the current gift provision. Then there was a question raised as to the actual company gifting then the actual people. Well if that is the case the company would have to hire each person or at least 1099 them on the compensation and it should post to the individuals receiving money that they would need to speak with a tax associate as to how much taxes they would need to pay the IRS. In closing the IRS has no case here, there are hundreds of tax laws that protect this girl and she has a great case, most if not all of the money that she received was from tax payers like you and I, all of the money that I have has already been taxed via my paycheck, If I paid taxes on that dollar bill why should a bum on the street have to pay taxes on the same dollar bill, the next issue is the IRS vague description as to earned income and income period. It is all listed under IRS publication 525, happy reading and good luck to this young girl just remember they can not tax the horse from both ends always remember that ... If a farmer buys feed for his cows and pays taxes on the feed that he purchased, when the cow takes a crap, the IRS can not tax him on the sale of the manure ... think about it ...
Posted by: J.Bryan (Bryan Financial Svc) | Friday, January 22, 2016 at 10:11 PM
Great discussion topic and very interesting but I think everyone on here is really missing the bigger picture here. This is EXACTLY why we need to get rid of the IRS. My question to all of you is this ... how much of this nonsense will you tolerate before you decide enough is enough or is it a situation as to where it's simply nothing more than a great discussion topic until it actually happens to you ... ??? Folks, we need to ditch the IRS. I can only hope things work out for this girl and wish her the best. I'm battling cancer myself and fully understand the insane medical cost of treating this disease and that's with insurance. I have a plan with Blue Cross and will still mostly likely be bankrupt in another 8 months after fighting this for the past 12 months. And guess what I just started two days ago ... a GoFundMe account to help with my medical bills.
Have a great day folks and I wish you all good health. =o)
Posted by: Mike | Wednesday, January 20, 2016 at 07:19 PM
There taxing pre taxed donations to fund people on welfare welcome to America home of the free but it's Gona cost ya
Posted by: Nick | Tuesday, December 08, 2015 at 05:24 PM
Landon: companies can't gift money to individuals under the gift tax rules. You changed the discussion from personal gifts to corporate gifts, & that's different. As an individual you can give away up to $14k/person/year (out of your income that's already been taxed) with no more taxes due on either end.
Posted by: wick | Monday, December 07, 2015 at 09:12 AM
I am just curious what is GoFundme income taxed as. They take almost 10% of each transaction.
Posted by: Victoria B. | Thursday, November 19, 2015 at 11:24 PM
go fund me says on their q&a page that they will issue a 1099k on any accounts that exceed 20,000.00.....i can only assume that the IRS is looking at that as a single gift and therefore taxed as such....it also states that it does so in the US only...so that means funds distributed to other countries might slip through the tax loop holes....imagine if these accounts could be used to fund drug deals, terrorist, gambling, prostitution and other illegal activity....hmmm, you can bet the IRS will be watching where these funds go....
Posted by: Tony | Friday, October 23, 2015 at 04:33 PM
How did they get her social security number?
Posted by: Chris Farrell, CPA | Monday, October 19, 2015 at 07:13 PM
I wonder if she deducted the medical expenses. In other words, is this a "tax benefit rule" case?
On another level I think the IRS is looking to establish a precedent about crowd funding. Sad for her, though.
Posted by: Chris Farrell, CPA | Monday, October 19, 2015 at 07:10 PM
Personally, I think the analogy of crowdfunding being today's version of a donation jar is appropriate and the way citizens think the money should be treated...as gifts. My understanding is that individuals can give any other individual up to $14,000. per year without the IRS needing to be notified or involved in any way. I'm sure I'm one of many donors who want to know what is different about the case mentioned here. I never heard a word about the harassed school bus guard being dinged for taxes on the nearly $750,000. she received!
Posted by: Jack Butler | Saturday, October 03, 2015 at 06:08 AM
I think it depends on what the money is used for. If all the money collected is used for a medical need, then I don' think the IRS should be collecting taxes on it. The way our medical system is right now, this method of raising money may be the only means some people have in the event of a serious medical situation. It's not fair that the IRS should extract their cut of it. It seems like the government loves to repeatedly tax money over and over again and then waste it, while there are many who are low income or poverty and cannot get ahead or barely afford medical costs. For example, I know someone who lost his leg in a motorcycle accident and he is low income...so in order to afford a good prosthesis, a crowd funding account was set up. Why should the government get a piece of that? I don't think the laws have caught up yet - but this money should not be taxed unless it's above and beyond what was needed for medical care. Donors should also be able to claim it as a charitable contribution....it's no different than giving money to a church that has a benevolence fund, only the individual decides who they want to be benevolent toward and donates directly.
Posted by: Shiloh | Friday, September 25, 2015 at 06:35 PM
So I could just get my company to "donate" me bonuses of 100K throughout the year at Gofundme? And expect to keep it all, because it was a "gift".
Unfortunately it doesn't work that way...The Government ALWAYS get their cut. By the time you spent that money it's been taxed at least 3 times by the party's involved.
Posted by: Landon | Friday, August 14, 2015 at 03:15 PM
Interesting enough that with increasing popularity of Go Fund Me accounts, I haven't seen any of my tax clients bring those in. I can only imagine one upset taxpayer if they do get tax forms from them.
Posted by: La Rusa | Friday, May 08, 2015 at 12:46 PM