[Wikipedia-l] Interstate charitable solicitations

Tue Oct 7 23:41:11 UTC 2003

Alex T. wrote:

>From: "Ray Saintonge" <saintonge at telus.net>
>
>>Brion Vibber wrote:
>>
>>>On Mon, 6 Oct 2003, Delirium wrote:
>>>
>>>>What about things like Brion's notebook fund-- is he
>>>>supposed to register that in all 50 states too?  The whole thing seems a
>>>>bit ridiculous, which is probably why most people just ignore it.
>>>>
>>>Damfino, but I'm not a charity; I expect to pay income tax on it and
>>>would consider it to be technically 'wages, tips, and other income'.
>>>
>>>Yay taxes!
>>>
>>You make it sound like you enjoy paying taxes.  Not being a charity does
>>prevent donors from taking deductions for their donations.
>>
>
>But if they get audited do you think the IRS will allow them to take it
>as a donation? Gifts are not generally deductible under US tax law
>unless such gifts are made to a charity for a charitable purpose.
>
>http://www.irs.gov/pub/irs-pdf/p526.pdf Page 5 col. 2 states that
>donations to individuals are not deductible from income.
>
>Generally speaking in US law (I am not talking about other countries
>here whose law may be substantially different from US law) the only
>donations that one may deduct are to organization that have a tax
>exemption by law (the so called $5,000 income per year exemption)
>or by determination under the law by the IRS (available to all
>not-for-profit
>groups, corporations, trusts or associations).
>
>Now maybe given money to Brian for his notebook is really giving
>money to Wikimedia for a notebook that Brian can use for Wikimedia
>projects. Otherwise it is not a tax deductible donation.
>
This is a damn long-winded way of agreeing to what I said in one sentence.

>If someone gives you a gift it they may also have to pay a gift tax:
>http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
>
At the risk of seeming insensitive, that would be the donor's problem. 
 Did the gift really exceed $11,000?  If it didn't then gift tax is not 
an issue.

>>The amounts
>>that you received were not received as a part of a business venture, nor
>>would the donors receive any clearly identifiable, direct benefit.
>> These amounts are gifts, and as such are excludable from income.
>>
>
>I am not familiar with Brian's personal income situation, but the question
>may be a bit more complex than it appears. If Brian is developing software
>that is licensed for commercial use (as all of the licenses software and
>documentation are), then he might have an expectation for commercial
>gain at some point in the future (someone wants a special patch and
>Brian is the only person who can do it so then ask Brian to do it for
>them in exchange for payment for services rendered, nothing wrong in
>that). If his is self employed he may be using the notebook for several
>purposes and it may then be considered depreciable property under
>tax law and he may be able to amortize it over several years.
>
>Sometimes if you are in business for yourself (independent contractor)
>as many software developers are (even if they have a "day job")
>there are more benefits to declare it as income producing. If it is just
>a gift then it cannot be depreciated in such a manner. If you are in
>business for yourself and have no income then the  IRS will not allow
>one to take deductions after a point.
>
>This is really an issue his tax advisor should look at, and perhaps
>if Wikimedia wants it can consider this under its umbrella, though
>in that case Wikimedia will have a reversionary interest in the notebook
>if Brian does not continue to help Wikimedia for the useful life of
>the equipment.
>
>There are many "business" sites on the internet that have PayPal
>"Donation" buttons on their site. I have inquired with a few of them
>and they all state that they are not charitable or not-for-profit and
>they are asking for voluntary payments in exchange for their open
>content or free software or services. They consider themselves
>businesses and declare the donation as income, not as a gift. If someone
>provides a service and makes some money it is income.  The money
>is not being given to Brian for a purely gratuitious purpose, there is
>an expectation that he will use the notebook to work on Wikimedia
>projects. It may not be a gift in that analysis. It may be income
>as he is providing a service just like these other "businesses" who
>are declaring their donations as business income. His business is
>providing services to Wikimedia in exchange for a notebook.
>
Brion should be happy that Alex is not his tax advisor!

The first rule should be "In cases of legitimate doubt, give yourself 
the benefit."  

The gift tax reference above includes the sentence, "Any transfer to an 
individual, either directly or indirectly, where full consideration 
(measured in money or money's worth) is not received in return," to 
determine what is meant by a gift.  Granted the nature of the IRS beast 
is such that it will change these definitions to suit their current 
requirements, but this is a good starting point.  After all, both gift 
and income taxes are part of the same Internal Revenue Code.

The cash gift and the computer are two different issues.  Although it 
would discreditable behaviour for Brion to use the money for anything 
other than the stated purpose it would not be illegal.  If after buying 
the computer he chose to stop providing the assistance that he has been 
giving, the only real effect might be a very severe case of bad 
wiki-karma.  The donors would be left witing it off as a bad experience. 
 Fortunately, in our atmosphere of trust, we don't need to give serious 
consideration to these worst-case scenarios.  The lack of legal 
obligation is an important element in determining whether something was 
a gift.

What I previously wrote was with reference to the taxability of the 
payments.  Being keenly aware of the complications relating to property 
that is partly for business and partly not, I made a conscious decision 
not to mention depreciation.  Nevertheless the determining factor for 
the applicability of depreciation in these circumstances should not be 
the source of these specific funds.

Exploring the possibility of reversionary interests just gets us even 
further from keeping it simple.  My impression is that there was more 
than one donor.  Are you suggesting that every one of them should have a 
reversionary interest? Gimme a break!

The preferred approach for dealing with this payment on a tax return is 
to say nothing.  If you are one of the 3% or so that is chosen for 
audit, you have a legitimate case for saying that it was a gift.  Tax 
fraud would only apply if there was no such legitimate position.  The 
ugly fact is that most tax problems arise when people provide gratuitous 
information that they legally could have kept quiet about.

Ec