The IRS, in a fact sheet released Thursday, reminded taxpayers that crowdfunding distributions may be includible in the gross income of the person receiving them, depending on the distributions’ facts and circumstances (FS-2024-28). Also, the crowdfunding site (or its payment processor) may be required to report those distributions to the IRS and the payee if the distributions meet reporting thresholds.
Crowdfunding involves funding a project or venture by raising contributions from a large number of people, typically through online crowdfunding sites. Crowdfunding campaigns fund a broad range of projects, from producing a product or new technology to supporting a charitable cause.
Form 1099-K requirements
The crowdfunding website or its payment processor may be required to report distributions of money raised, if the amount distributed meets certain reporting thresholds, by filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS and furnishing copies to payees.
The American Rescue Plan Act (ARPA) of 2021, P.L. 117-2, clarifies that the crowdfunding website or its payment processor is not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made, if the payments are not made in exchange for goods or services.
For calendar years 2023 and prior, Form 1099-K was required if the total of all payments distributed to a person exceeded $20,000 and resulted from more than 200 transactions. See Notice 2023-10 and Notice 2023-74. For calendar year 2024, the IRS announced a plan for the threshold to be reduced to $5,000 as a phase-in for the lower threshold provided under ARPA. See IRS News Release IR-2023-221.
Gifts vs. gross income
The IRS notes that determining whether crowdfunding distributions are includible in the recipient’s gross income depends on all the facts and circumstances. And while gifts are generally not includible in the recipient’s gross income, and some crowdfunding contributions may qualify as gifts if they are made as a result of the contributors’ detached and disinterested generosity, the IRS warns that “[c]ontributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts.”
To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.
