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Friday, June 24, 2011

Maule: The Tax Consequences of Being Paid for a Date

What's Your Price Jim Maule (Villanova) has a great post on the tax consequences to the (mostly) women who "sell" dates to (mostly) men on What'sYourPrice.com, whose tagline is "Buy a First Date With Anyone":

For the Generous:  DATE BEAUTIFUL PEOPLE® GUARANTEED.  You have high standards and you won't settle for less. You're willing to pay to date beautiful, gorgeous or sexy people. For the right price, WhatsYourPrice.com is the only dating website that guarantees you will date more attractive people than you can handle.

For the Attractive:  GET PAID FOR DATING® GUARANTEED.  No matter what you're seeking, finding that perfect relationship takes time. However, dating doesn't have to be a waste of time. If you're beautiful, we are the only dating site that guarantees you will get paid while you spend time meeting fun and generous people.

From Jim:

What are the tax consequences of being paid to go on a date? One woman interviewed for the story explained that she received $120 in a card handed to her by the member who successfully bid for a few hours of her time, which she says was spent at dinner at a fine restaurant. Is the $120 gross income? How can it not be? It’s not a gift. It was delivered in exchange for a few hours of the woman’s time, company, conversation, and attention. How does that $120 differ from $120 paid to a psychologist, plumber, or painter? What are the tax consequences of the meal received by the woman? Does the fact that she was paid to go to dinner make the value of the dinner she received additional compensation? Assuming that people who are treated to dinner on dates for which they are not being paid almost surely are not reporting the value of the dinner as gross income – though there are arguments that they should be reporting it – does the tax nature of the dinner transaction change because of the $120 compensation? If so, should the tax treatment of other dinner dates depend on what other “consideration” is involved in the overall transaction? One member’s explanation of her goals may come back to haunt her come tax time: “If it's going to be a big, huge waste of time, at least I'm going to get paid for it. A lot of these guys are wealthy gentlemen, and I think my time is as valuable as their time." Getting paid for one’s time is compensation gross income. As for deductions, apparently the “attractive” members don’t pay the web site to unlock emails. No payment, no deduction. The ones paying the web site fees aren’t carrying on a trade or business or for-profit activity, and the payments surely aren’t charitable contributions. No deduction.

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Comments

This is simply the dressing up of escort services, for which tax responsibilities and compliance are well known.

Posted by: Woody | Jun 24, 2011 10:03:23 AM

By the time our date has had her hair and nails done, and paid for her cab, where is her profit? Assuming that the dates are real interviews and not some kind of commercial services in disguise (escortage, eg), why shouldn't the interviewer bear some or all of the reasonable costs and reimburse them to the candidate?

Posted by: RICHARD | Jun 24, 2011 12:41:01 PM

How would the taxman know you got pay for your dates? Do clients deduct your price as business expense? If not, who knows how much you earned? Why bother the taxman at all?

Posted by: icc | Jun 24, 2011 1:10:44 PM

Well, I'm not so sure the IRS would be interested in pursuing a small matter of unreported gross income of what is probably no more than a few hundred dollars. Well, unless the girls were registered as Republicans, of course.

And we thought Nixon corruptly used the IRS to punish political enemies...

Posted by: Sardondi | Jun 24, 2011 1:15:38 PM

If eating the meal is a required part of the contract, then I would say no, it's not income. If your job is say, to review golf equipment, and due to that your job pays the greens fees at a course for you to be able to do that job, would that be income?

Posted by: RT | Jun 24, 2011 1:19:22 PM

Since she is being paid to "be attractive", that would make all of her pre-date preparations to attain/maintain that level of "attractiveness" normal business-cost deductions, would it not?

Posted by: AD | Jun 24, 2011 1:28:10 PM

I would add that if fee payers are using this to find a date in relationship to a business dinner (I'm not talking prostitution here) for themselves or for a client, that could be considered a entertainment expense.

No, I'm not a tax attorney/professor/accountant. I'm an engineer. And I didn't stay at a Holiday Inn last night.

Posted by: John P. Squibob | Jun 24, 2011 1:41:44 PM

I think it all revolves around expectations, or rather the nature of the contract. If there is a mutual agreement that you are paid for your time, and you are, then that is income. But if you do not have any such mutual expectation, it can reasonably be regarded as a gift.

Id est, if I agree to mow my neighbors lawn for $10, and I do, income. On the other hand, if my mother asks me to mow her lawn, and I do, without any expectation of being paid -- and then she says, you're such a good boy, here's $10, go buy yourself a date with a good-looking girl -- that's a gift. There is no necessary connection between my labor and the money.

Certainly a date set up through this website strongly suggests a contract, so a reasonable person would count money "the beautiful person" (as the site puts it) receives as income. But of course that means any expenses the beautiful person incurs in an effort to be beautiful for this business are legitimate business deductions. I'm sure it would not be hard to arrange matters so that your net reportable income was modest or zero.

In fact, it would be interesting to be a person with a surgically correctable big ugly nose or small tits. You join the site, go on a few dates and get poorly paid, dutifully report the income, then go get your nose or tit job, go on some more dates that are modestly more successful, again report the income and deduct the considerably greater expense, and then regretfully "go out of business" because apparently your revenues aren't going to exceed your expenses.

But with the net final result that your nose or tit job was 100% tax deductible, not even subject to the 7.5% of AGI limit for medical deductions. Tee hee.

Posted by: Carl Pham | Jun 24, 2011 2:00:00 PM

At the risk of being suspicious, it strikes me as, um, more than a _dating_ service. At least for a significant fraction of the ladies there.

Do they have to declare that income too?

Posted by: Fred2 | Jun 24, 2011 2:09:29 PM

One could argue that the meal is part of the 'service' being compensated, vs part of the compensation.

Would a prostitute's income include half of the value of the hotel room that his business was completed in, as well as the fee?

Posted by: mbirch | Jun 24, 2011 2:10:14 PM

IANAL

I would view her more as an entertainer. She doesn't have specific business skills to warrant $60 per hour, but a night out is entertainment.

As for the dinner, it should be treated the same as any other consumable supply during an entertainer's performance. A comedian who gets dinner at the club should be reporting that. A band that destroys a guitar (e.g. 'consumes'), yet includes the replacement cost as part of the venue bill, should declare that. I see this as no different.

The interesting part - to me - is the topic of how does this blend into dating. It is still an 'entertainment activity' (in many cases). So would the person on the receiving end of dinner / ticket / trip need to declare those resources as income? If she (generalizing) received a lot of them (?how many? per week?), then yes.

And that is the crux of my dislike of income tax - it *really* invades privacy. If the Right to Choose is based on a woman's Right to Privacy, how can that Right to Privacy not include sheltering income sources from the IRS? (I know the answer - political greed. But my point is that this position is inconsistent.)

Posted by: _Jon | Jun 24, 2011 2:11:14 PM

Slight diversion from the main topic:

"Assuming that people who are treated to dinner on dates for which they are not being paid almost surely are not reporting the value of the dinner as gross income – though there are arguments that they should be reporting it..."

The fact some people think our tax code requires reporting a dinner received as part of a regular date (not the paid kind) as income is reason number 1,999,999 that the tax code should be blown up as an irretrievable disaster.

Although I suppose if you paid for dinner but the date or relationship ended badly, you coud take revenge by reporting the recipient to the IRS and state tax authorities...

Posted by: Eric | Jun 24, 2011 2:21:33 PM

As far as I remember ... performing "escort Service" is taxable. In fact, aren't all income generating activities taxable? Even those that are otherwise illegal?

Posted by: PoliTech | Jun 24, 2011 2:56:18 PM

The questions raised herein point to some serious problems in our tax code. I believe they are not addressed, specifically because they represent a can of worms the government doesn't want to get involved in, not the least of which because said problems are not resolvable in any practical way. Just to illustrate how material, but solvable, a transaction can be, suppose sugar daddy buys sweet cheeks a $100,000 diamond ring to cement his proposal of marriage. She has to think about it, but decides she had rather just be friends. She keeps the ring. Does she have $100,000 of (presumably earned) income? Does he have a casualty loss? Does this actually happen? Has anyone ever seen such a case apppearing in tax court published in the tax literature?

Posted by: willis | Jun 24, 2011 3:13:44 PM

Oops. Make that un-solvable.

Posted by: willis | Jun 24, 2011 3:14:56 PM

If you date someone for a while and they dump you, could you send them a 1099 for all the money you spent on them, as payment for their time? (In lieu of billing them for your wasted time.)

Posted by: MarkInFla | Jun 24, 2011 4:11:35 PM

"My dear, we are no longer discussing what you are, we are now merely haggling over price"

Posted by: West | Jun 24, 2011 4:34:01 PM

If I were a critical feminist, I would suggest that this was a good example of Mark Kelman's point about trivial tax issues displacing discussion of more serious social problems, but . . .

Posted by: mike livingston | Jun 24, 2011 4:52:33 PM

This situation could be compared to that of a client who was a model for trade shows, serving as bait to draw in consumers by looking pretty and waving her hands above car features and opening the car doors with flair. We wrote off all sorts of expenses for hair, nails, dresses, skin care, travel, etc. There wasn't a lot of profit left.

Now, the only difference between this discussion and those of other occupations revolve around the beauty of the taxpayer. I haven't seen anything in the Tax Code that gives exemptions for people who look good - not that it would benefit me.

Posted by: Woody | Jun 24, 2011 6:19:44 PM

mike livingston: If I were an anti-feminist I might suggest the same thing. I find this substantially skickier than prostitution, actually, if it isn't just a blind for escort services. But I'd also suggest that the daters involved probably deserve each other...

Posted by: Tagore Smith | Jun 24, 2011 6:46:57 PM

That site is terrible. I joined it yesterday and deleted my account only 1 hour later.

Posted by: anon | Jun 25, 2011 11:14:44 AM

@Tagore my point is less good or bad than is this really the kind of issue tax professors should be concerned with . . . it seems to me there are a lot bigger things happening

Posted by: mike livingston | Jun 25, 2011 3:48:21 PM

I hope he doesn't pay for her to park. I mean, if you get parking money too it might just sent you into the next tax bracket.

And is it only women? What if you prefer the company of men (either socially to go out and have a drink at the bar, or you are not into women).

Assuming this is wholly above board, I wonder how much you could make a year doing this (not me, I would not qualify). And it could be legit. For example: you are out of town on business alone. You would like to go out to eat, but eating out alone sucks (c'mon, it does). So you pay for someone to have dinner with you so you don't have to sit alone a table bored out of your mind. I don't see anything so wrong with that.

In fact, maybe some enterprising tax prof blog reader would like to join me in an enterprise called "DATE INTERESTING AND/OR FUN PEOPLE® GUARANTEED." Who cares what they look like. Again, out of town. It'd be fun to grab a beer with someone. And you'd be guaranteed that they would be interesting, fun, or both. Same for lunch or dinner. Nice to chat with someone over a meal. All you got to do it pick up the bar bill or the meal and pay a small fee for the use of the service.

Now who is with me?

Posted by: tax guy | Jun 26, 2011 6:51:50 AM