Tax Treatment of Internet Gifts

I'll post my reply here using Ms. Klein, the bus monitor taunted by the teenagers, as the example.

The case citd in every law school course or masters degree case on taxation is the SCOTUS decision in Commissioner v. Dubenstein 363 US 78 (1960).

'8 The court established that the common law defintion of a gift was not relevant. They said that the key criteria to be used was the intent of the person making the transfer. They said there was no "bright line" test for this. The intent of the transferor had to be determined case by case based on the objective facts. From a statutory sense a gift "proceeds from a "detached and disinterested generosity," Commissioner v. LoBue, 351 U.S. 243, 246 ; "out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, at 714. And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention." [363 U.S. 278, 286] Bogardus v. Commissioner, 302 U.S. 34, 43 . "What controls is the intention with which payment, however voluntary, has been made." Id., at 45 (dissenting opinion). 8 "

They also said: "Decision of the issue presented in these cases must be based ultimately on the application of the fact-finding tribunal's experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact. Baker v. Texas & Pacific R. Co., 359 U.S. 227 ; Commissioner v. Heininger, 320 U.S. 467,

475 ; United States v. Yellow Cab Co., 338 U.S. 338, 341 ; Bogardus v. Commissioner, supra, at 45 (dissenting opinion). 11 [363 U.S. 278, 290]

Just about every case since 1960 that has been decided in tax court, district court and the appeals courts has cited Duberstein.

Using Ms. Klein as the example, I believe two things happened when the cellphone video went viral. There was a huge outpouring of revulsion for what the students did to her and there was an outporing of affection and admiration for her. She had nothing to do with the website that was launched to solicit gifts to her. The people making the transfer appear to be doing it out of "affection, respect, admiration, charity or like impulses."

Sounds like a gift to me.

P.S. Ms. Klein has announced that she will not keep the entire $648,091 and counting that has been donated by over 28,000 people.

This is a repost as my news server doesn't have my original reply:

I'll post my reply here using Ms. Klein, the bus monitor taunted by the teenagers, as the example.

The case citd in every law school course or masters degree case on taxation is the SCOTUS decision in Commissioner v. Dubenstein 363 US 78 (1960).

'8 The court established that the common law defintion of a gift was not relevant. They said that the key criteria to be used was the intent of the person making the transfer. They said there was no "bright line" test for this. The intent of the transferor had to be determined case by case based on the objective facts. From a statutory sense a gift "proceeds from a "detached and disinterested generosity," Commissioner v. LoBue, 351 U.S. 243, 246 ; "out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, at 714. And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention." [363 U.S. 278, 286] Bogardus v. Commissioner, 302 U.S. 34, 43 . "What controls is the intention with which payment, however voluntary, has been made." Id., at 45 (dissenting opinion). 8 "

They also said: "Decision of the issue presented in these cases must be based ultimately on the application of the fact-finding tribunal's experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact. Baker v. Texas & Pacific R. Co., 359 U.S. 227 ; Commissioner v. Heininger, 320 U.S. 467,

475 ; United States v. Yellow Cab Co., 338 U.S. 338, 341 ; Bogardus v. Commissioner, supra, at 45 (dissenting opinion). 11 [363 U.S. 278, 290]

Just about every case since 1960 that has been decided in tax court, district court and the appeals courts has cited Duberstein.

Using Ms. Klein as the example, I believe two things happened when the cellphone video went viral. There was a huge outpouring of revulsion for what the students did to her and there was an outporing of affection and admiration for her. She had nothing to do with the website that was launched to solicit gifts to her. The people making the transfer appear to be doing it out of "affection, respect, admiration, charity or like impulses."

Sounds like a gift to me.

P.S. Ms. Klein has announced that she will not keep the entire $648,091 and counting that has been donated by over 28,000 people.

All of the donations are presumably for the cause of combatting bullying, they are not purely disinterested donations to a random stranger. Klein herself is now a public figure who has spoken out on her experience and lessons to be learned from it, so it's hard to see how she is not actively contributing to the increase her income, which has now grown to well over $600K.

Whether or not the donors can deduct their donations is not directly relevant.

I can't find any information on whether or not Rodney King received any donations after his beating by police two decades ago, but that was the first similar situation that came to my mind.

The media is all over the place as much as we are here, apparently. When you start looking at the commercial tie-ins that are reportedly on the table, it starts to look more an more like the millionth-customer prize.

Here is another take, link provided below.

"The vacation fund aside, Klein can take her pick of free trips to Disneyland and Disney World, Disney cruises, Hawaii trips, a week-long all-expenses paid spa stay and more. Someone wants to give her a new car. Someone else wants to take her on a helicopter trip over West Ridge Road. A Hollywood talent agency wants to talk to her about a book or movie deal.

"It all doesn't feel real," said Klein, as yet another television van parked in front of her house Friday afternoon to set up for a live broadcast and she waited for a telephone interview with the BBC. "You know, when I see that cash in my hand I'll believe it."

[...] As well, Smith adds, the amounts are being fueled by another important component beyond that of a desire to help.

It's the impulse to tell everyone else that we did something about it.

"What's nice about something like this indiegogo is that when I donate five dollars, I can actually share a link to my facebook wall or timeline that says I just donated five dollars to this woman...and that's something I'm going to want to do because it's going to make me look good, right? [...]"

Indiegogo may have hit the jackpot as well. In this case, it will collect a base fee of four percent of the amount of money raised.[...]

The amount of money eventually turned over to Klein will be less than the amount collected as well, because of third party provider fees, from pay pal, credit card companies, and even banks for wire transfers and fees for converting donations from other countries into us funds.

Klein will also be subject to income tax, on any amount she accepts. "

OK, that's enough Internet searching for me for today... ;-)

This is a repost as my news server doesn't have my original reply:

I'll post my reply here using Ms. Klein, the bus monitor taunted by the teenagers, as the example.

The case citd in every law school course or masters degree case on taxation is the SCOTUS decision in Commissioner v. Dubenstein 363 US 78 (1960).

'8 The court established that the common law defintion of a gift was not relevant. They said that the key criteria to be used was the intent of the person making the transfer. They said there was no "bright line" test for this. The intent of the transferor had to be determined case by case based on the objective facts. From a statutory sense a gift "proceeds from a "detached and disinterested generosity," Commissioner v. LoBue, 351 U.S. 243, 246 ; "out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, at 714. And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention." [363 U.S. 278, 286] Bogardus v. Commissioner, 302 U.S. 34, 43 . "What controls is the intention with which payment, however voluntary, has been made." Id., at 45 (dissenting opinion). 8 "

They also said: "Decision of the issue presented in these cases must be based ultimately on the application of the fact-finding tribunal's experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact. Baker v. Texas & Pacific R. Co., 359 U.S. 227 ; Commissioner v. Heininger, 320 U.S. 467,

475 ; United States v. Yellow Cab Co., 338 U.S. 338, 341 ; Bogardus v. Commissioner, supra, at 45 (dissenting opinion). 11 [363 U.S. 278, 290]

Just about every case since 1960 that has been decided in tax court, district court and the appeals courts has cited Duberstein.

Using Ms. Klein as the example, I believe two things happened when the cellphone video went viral. There was a huge outpouring of revulsion for what the students did to her and there was an outporing of affection and admiration for her. She had nothing to do with the website that was launched to solicit gifts to her. The people making the transfer appear to be doing it out of "affection, respect, admiration, charity or like impulses."

Sounds like a gift to me.

P.S. Ms. Klein has announced that she will not keep the entire $648,091 and counting that has been donated by over 28,000 people.

same conclusion, right? And after reading this long thread I'm not sure what that conclusion is :).

Andy comments I was thinking of the bus incident, but tried to phrase the question to be more general...

I don't think Zimmerman's defense fund is the same since I believe he set up the site himself to raise money for his defense.......

Taking it a step further, would begging on the street generate taxable income, since each donation is a gift without any service being received....

.... and note that gifts are always taxable to the giver, and not to the receiver......

In my opinion, "prizes", such as lottery winnings or TV prizes, are monies that are "earned" as a result of an action by a person.... much like gambling winnings.... and are taxable... Such winnings are not "gifts"....

Thanks for the discussion on the subject. I can see that this is a subject on which knowledgeable people often disagree..... I guess we have to go by the IRS definition of a "gift"....

Andy

So it was a gift when she was just a victim, but when she became a spokesperson or advocate it became income?

As Alan quoted from the Supreme Court decision: a gift proceeds from a "detached and disinterested generosity", out of affection, respect, admiration, charity or like impulses.

Giving to a beggar presumably falls under the "charity" reason there.

No one is ever likely to pay gift tax on this, because it falls well under the gift tax minimum.

Please excuse the top-post, but I just want to thank Alan for the excellent research and analysis that I had wanted to do but didn't get around to.

Stu

Alan wrote:

On Tue, 26 Jun 2012 13:00:31 EDT, Alan wrote in Re Re: Tax Treatment of Internet Gifts:

Looks that way to me too.

On 6/26/12 1:00 PM, Alan wrot

Agreed. The combination of events makes it a gift.

And exactly how large was the fund at that magic moment?

Seth

Quite possibly, yes.

The server timestamps at Indiegogo can easily supply that answer.

The post from me that showed up this morning was actually sent by me yesterday afternoon, so maybe Alan and I were experiencing the same problem (posting delays to newsgroup).

Regarding the comments above, I've always been on the "taxable income" side, so they normally wouldn't be an issue for my position. However, can we agree that trips sponsored by Disney and the book deal, if she accepts them, will not be tax-free gifts? So yes, it is quite possible that at some point in time, she switched from being a "random stranger" receiving gifts to being someone who was actively publicizing her situation, including the method for contributing money. I'd say, right around when she gave her first press interview would be the time. The size of the fund at that time would be easy to ascertain from time stamps on the donations.

This wouldn't be much different from someone who turns a hobby into a business -- there is a point in time when that transition happens.

Per another comment, there was a lengthy discussion in this newsgroup in the last year or two about the issue of panhandling, and whether that money was a gift or taxable income. Similarly, I don't think a final conclusion was reached.

Lastly, here is an interesting take on how many people feel Klein

*shouldn't* be taxed because she "deserves every penny" of the fund, and what the relation between "deserving" your income and being taxed on it might be.

My opinion is that it doesn't matter if she is soliciting or not. If she isn't providing anything in return, she's receiving a gift. In the case of the Disney trip, Disney is receiving the right to advertise that they've given the trip. If Disney were to give the trip without ever disclosing that it had done so, it might still be a gift. (Of course, Disney wouldn't be able to deduct the cost of the gift.)

It's completely different. In the hobby situation, the taxpayer is doing something in exchange for money. The only question is whether the venture has a profit motive. In this situation, payments she receives for providing a service (interview fee, etc.) would be income. Payments from disinterested parties who don't receive any consideration in return would still be gifts.

[remainder of original post snipped]

Ira Smilovitz

More specifically, I think it would probably be when she schedules a press conference herself instead of taking unsolicited calls from reporters. As long as they're calling her, she's not "actively publicizing" herself.

Depends on whether or not Disney wants to deduct the gifts. If not (and it's worth more than $25), it can still be a gift.

Kids ask their parents for money all the time, and those are not taxable. Whether or not it's a gift depends on the state of mind of the donor, not the donee.

Agreed.

Just like Oprah's gift of cars, if they intend to deduct the cost, then it's for business purposes and not a gift. If they don't deduct it, it's (probably) out of generosity and a gift. Getting publicity for it might tend to be evidence of whether or not it was for business purposes, but it wouldn't be determinative.

___ Stu

On Tue, 26 Jun 2012 17:16:43 EDT, Mark Bole wrote in Re Re: Tax Treatment of Internet Gifts:

Not a chance.

How would those supply the answer to the question of "precisely when did she become an advocate"?

When she gave an interview?

When she mentioned the fund?

When her mention of the fund was published?

Seth