Thursday, November 8, 2018
Kahn: GoTaxMe — Crowdfunding And Gifts (Why Peter Strzok Should Be Taxed On The $450k He Raised On GoFundMe)
Jeffrey H. Kahn (Florida State), GoTaxMe: Crowdfunding and Gifts, 22 Fla. Tax Rev. ___ (2019):
In 2018, Peter Strzok was fired from the FBI, based on text messages that he sent degenerating President Trump. A week later, a group set up a GoFundMe page soliciting funds to help with his “legal costs” and to replace his “lost income.” As of early September, that fund had raised over $450,000. GoFundMe states on its website that donations made are usually considered to be “private gifts” and not taxable to the recipient. Using Mr. Strzok’s campaign as an example, this article will discuss the current standards for determining whether a transfer qualifies as a nontaxable gift and the policy rationale for the exclusion of gifts.
The article argues that, contrary to the common conception of what qualifies as a gift for tax purposes, there are some circumstances in which the intention of the transferor should not control the characterization. Instead, in those circumstances, the role of the transferee should control. The article concludes that GoFundMe’s position is incorrect and funds collected using GoFundMe (and other crowdfunding websites) should be treated as income to the recipient.
Fascinating paper. Here is what seems to me a distinct reason why the donations should be taxable income for the donee, based on work done and quid pro quo (tho maybe this folds into the two income concepts you discuss, or is behind them as a basic principle). The goFundMe campaigns often, maybe always, involve a sort of quid pro quo similar to tipping. Mr. Stroszk has done things at the FBI that people like, but he is incurring legal costs and losing his job as a result. Therefore, he or someone else (distinction doesn't matter, as is worth discussing) starts a GoFundMe campaign essentially or literally telling people, "Stroszk has done good work that benefits you and/or (again, discuss) the world. You have a moral obligatoin to help him when he gets in trouble as a result." The leading case that you cite applies then, because of hte moral obligation. It is like tipping because the work is done in advance, and the payment is morally (tho not here, customarily) expected. Indeed, in the Stroszk case, if the stated purpose of the fund is to pay for his legal costs, the money goes directly to help pay for the work done. If the stated purpose is to compoenstate him for losing his job, it is only slightly less directly for work done--- it is that having done this work, he loses his other income, so this is replacement income for him, and should be taxed.
Posted by: Eric Rasmusen | Nov 8, 2018 7:38:14 AM