Cousin Jack, who is a Tax Law Professor, considers whether the “donations” that bloggers receive in their online “tip jars” are reportable as income for tax purposes. Jack concludes that such “donations” are reportable as income, and he points to a site laying out the reasoning behind this conclusion.
Stripped of detail, here is the deal. If the money people place in the online tip jars is deemed to be a gift, it is not reportable as income. If, however, it is viewed much as the tips given to cab drivers or waiters and waitresses, it is taxable income. The cited case law suggests that the government would consider such online “donations” to be analogous to tips given to waiters and waitresses or dealers at a casino and, as such, are reportable.
Memo to Andrew Sullivan: Call your accountant!
Update: I had originally posted the following thoughts in the comments, but I decided to put them here instead.
Not having a tip jar, for me, this is merely an interesting academic exercise. Having thought about this a bit more, I sense that the government either doesn’t consider (or only pays lip service to) the intent of the “donor.” Were it to examine the intent of the donor, I think the conclusion might change for certain “donations.” Consider a couple examples where the intent of the donor is more apparent.
1. Suppose a Joe Blogger, with a tip tar on his blog, does a post in which he mentions that it is his birthday. Further suppose that reader X deposits $25 tip in the tip jar along with a comment saying “Happy Birthday, Joe Blogger!” Gift or “taxable tip”?
2. Suppose that Josephine Blogger posted a blog about a recent financial setback in her life, and, after having been moved by the post, a long-time reader deposits $25 in the “tip jar” along with a note saying, “This is for you. I hope things turn around for you.” Gift or “taxable tip”?
I think, in both cases, it is clear that the donor intended the money as a gift, and I think that their intent should control. However, making such determinations would require a donation-by-donation examination by the IRS, which would make administration a nightmare.
Fortunately for the IRS, I doubt that Joe or Josephine Blogger would bother going to the mat over the tax on $25 (particularly so, if they were conscientious enough to report it to the IRS in the first place). However, what if the gifts to Joe and Josephine had been $25,000 instead of $25, a sum worth arguing about? I think on those facts they’d win.
So, what really is the intent of the people who make deposits into blotters’ tip jars, and should it matter? Suppose a blogger’s tip jar contained “donations” from 1,000 readers of $5 each and that all 1,000 were prepared to march off to the IRS office with the blogger to swear that they intended their $5 strictly as a gift, with no strings attached and in anticipation of nothing in the future. Again, on those admittedly tortured facts, I think the blogger wins.
Waddya say one of you fine folks sends me $25K on my next birthday, and we’ll test my theory. Hell, I know a good tax lawyer.