Tax Issues Re: Fund Raising for Cancer Treatment

If an individual directly pays a medical provider for her medical tretment, then that payment is not subject to gift tax.

If an individual pays for non-medical expenses such as travel, or pays for medical expenses indirectly (not directly to the medical provider), then that individual is liable for gift tax on the amount. However, there is a $13,000 annual exclusion. The annual exclusion is applied to each donor-recipient pair, so for example ten people can each pay $13,000 towards her non-medical expenses in a given tax year and none of them would pay any gift tax or have to file a gift tax return. (Even if some of them are each others' spouses.)

If they exceed this annual limit, then it counts against their lifetime gift/estate taxes and they would have to file a gift tax return (although, they still might not owe anything, unless they have used up their lifetime limit).

You want all such gifts to be construable as gifts from the donor, to her, the recipient, such that your efforts as intermediary do not personally stick you with a large sum of gift tax. Others here can comment on what measures may be suitable better than I, but probably a checking account in her name is adequate, whereas a trust is perhaps overkill and introduces complications.

Steve

will some of the money raised be provided by persons who are neither US resident or US citizen?

If so, they may be treated differently than a US person giving money. Others can comment, I just raise the issue.

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I'm pretty sure if it were donations made by others in response to an independent campaign like one often sees in localities for particular instances that those proceeds would be considered gifts and therefore, nontaxable.

When one takes upon oneself to solicit for funds, then I'm not so sure what actually applies.

I guess my thought was US law regarding gift tax and $13,000 annual exclusion will not apply to foreign people.

That's on the donor side; I'd doubt there will be many lining up that'll have a problem from that standpoint... :) I don't think that has any bearing at all on the receiver's side and presumably the gifts are voluntary and not being coerced/solicited by the recipient(s).

I was thinking of whether "donations" that are solicited for one's benefit really are "gifts" from a tax viewpoint.

I can see the third-party collection as mentioned earlier but this is the OP out canvassing and whatever he were to choose to do to solicit, apparently.

Yes, if it's not payment for goods or services it's a gift unless it falls under one of the statutory exemptions, such as under 2503(e) (qualified transfers to medical or education providers), or transfers to political organization, transfers within a marriage or divorce, and a few other special cases.

One possible trap is that by giving a gift to a person they might end up being disqualified from, say, Medicaid. This does not sound like a Medicaid case in this thread, but it's another thing to consider.

Steve

If the funds are provided to that person (the solicitor), they might be considered earned income. If they're provided to another (his sister, or if it isn't too much trouble/expense to set up, his sister's medical treatment trust), then they're not.

Seth

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Yeah, it's the former that somehow seemed dodgy to be able to claim it wasn't income to the recipient when/if was explicitly solicited and received by the same person.

This sounds reasonable but I am not sure that the medical provider (a private company, not a hospital) will be willing to receive $20,000 in multiple payments from dozens of individuals. I will have to check this with them.

This is great news since there isn't a chance that any of the donors will come close to even half of that maximum annual exclusion.

The way things have been going, it's unlikely that I will ever encounter the "lifetime limit". Still, since I am the only one who can serve as an intermediary for my sister in the US and since I am a law abiding citizen, I would like to conduct this unfortunate operation as cleanly as possible.

Exactly. This is the reason for my post here.

Yes, a trust looks overcomplicated to me. Also I checked the exemption requirements for section 501(c)(3) at the IRS website:

I also looked at 501(c)(26) and 501(c)(22) and again they refer to organizations, not to people.

Can I open a checking account in her name, although she is not a US resident?

Thank you so much Steve.

Yes, but it will pay directly for some of the expenses, it will not go through me. It is expected to be about $25,000 (half of the total expenses).

Thanks Wallace.

Can you shed some light about this 2503(e) you described? Is a private company providing the clinical test (listed in

You are correct. S>

That's exactly why I am asking. I will actually be one of the people donating (i.e. not receiving) but I am checking the possibility of me handling the money earmarked for her treatment.

Sending donors money coming from the US to her country is of course a possibility (that will solve all the questions asked) but it involves hefty wire-transfer and currency-conversion fees.

So the bottom line is whether it is sufficient to open a checking account in her name (although she is neither a US resident nor a US citizen)?

Thanks again for your replies.

Almost certainly not at most mainstream U.S. banks, due to post- Sept-11 security restrictions. You may want to look for a multinational bank, such as HSBC, that operates in her country of residence, and link a debit card to it for paying the various transactions.

Another possibility, although this will create so many other issues that I am almost reluctant to suggest it, is something like a PayPal account.

On your other question, yes most medical providers will accept multiple payments from different individuals for a medical procedure. I've paid other people's medical bills before. They will take your money.

Good luck--

Steve

More a legal than tax issue, but I don't see how they can refuse to accept such payments, nor why they would want to (unless you're talking about nuisance payments such as a jar of coins).

I'd love to see them try to sue for unpaid amounts just because the payments were offered in the form of multiple checks instead of one, especially if none of the checks was for less than, say, their standard office visit co-pay amount. Assuming there are no dishonored check fees, too...

-Mark Bole

A simple trust is much easier. The contributions aren't tax-deductible, and you avoid any possibility of them being considered your income (providing nothing from the trust pays you or your expenses).

Probably not, or at least not easily; but you could open one in the trust's name, with you as trustee.

Seth

That's OK if the contributions aren't tax-deductible. I just don't want to be liable for tax just because I handle the fundraising. Where can I learn more about such "simple trust"?

Thank you Seth.

If you're serious in going forward with this, I'd suggest consulting a local attorney. It would certainly be the one truly clean way to avoid the self-income possibility (assuming, of course, the terms of the trust were honored, etc., etc., etc., ...)

The other way I could see would be to do no collecting of any funds directly but only pledges to be paid by the donors directly to for the medical and qualified associated expenses.

If this is a scheduled sort of treatment/program, I'd even think the providing organization(s) would be more than happy to accept payment on account.

My question is whether gifts to a trust necessarily qualify for the $13,000 exemption from gift tax. There is something called the "present interest" rule. At minimum there has to be no possibility of the money coming back to the donor from the trust, otherwise it is not a true gift.

This is, to me, not the usual use of a trust. The goal here is to pay for things immediately, not build up funds in a trust.

Steve

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I agree on the latter as it being a pass-thru vehicle that needs somebody more expert to address or suggest better alternative, even. It would, afaict, do the one thing the OP wants which is to not have what appears to be earned income to him. Whether it succeeds effectively in other aspects is TBD as well as to what ramifications are to the donors.

And, of course, there's also the down side that any earnings that were to accrue would be taxed at the trust rates unless immediately distributed and then are those distributions taxable to the beneficiary being as they're not directly gifts any longer. I don't know; it seems excessively complicated probably but needs more expert advice on all ramifications which was what I was suggesting... :)

If it were I in OP's shoes, I'd probably set up a designated account for donations w/ my local bank where normally do business either if her name or if there's a problem because of the 911 bs w/ a "for benefit of" designation and give them a limited POA to pay the bills from the proceeds rather than doing so myself to keep a clear "hands off" position and takes me chances on the IRS catching up w/ me... :)

Depends on the terms of the trust. It's not that gifts to a trust don't qualify for the exemption, but gifts of a future interest don't qualify. A gift to a trust that can't be determined to be available for use immediately (or at least some time in the same calendar year or 30 days, whichever is longer) is a gift of a future interest.

In OP's case, he wants to use the trust as a vehicle for making gifts fairly quickly - or at least that's my sense. So gifts are unlikely to be considered future interests, so the exemption should apply.

There are many different kinds of trusts and many uses for trusts. This is not the most common, but it certainly is not unheard of.