Back in early December I wrote that the #NoDAPL movement against the Dakota Access Pipeline had taken in, at that time, over $11.2 million through some 285 different online fundraising accounts.
That’s a lot of money flowing to a lot of different places, most of which seem to be individuals or groups without any sort of tax exempt status.
Now as we move into tax season I’ve had readers asking me: What are the tax implications for all that money?
The easy answer? Well, there isn’t one.
“We have had many discussions within the department related to the potential for income tax liabilities associated with protest activity,” North Dakota Tax Commissioner Ryan Rauschenberger told me yesterday via email, adding that “it’s a complicated topic with many hurdles.”
The first category is regarding potential employer/employee employer/contractor relationship. If an organization is paying someone to perform activities they are either an employee or a contractor. In either case the person performing activities here in ND should be paying ND income tax. Even if these payments are being made to employees/contractors there are many compliance hurdles that have to be considered. For example, does the person even meet the federal filing requirement of $10,350 of gross income? If not, they don’t have to file any income taxes.
From a compliance standpoint we can look at organizations with activity here in the state and see if they are issuing 1099’s to people they are paying to be here protesting. We receive information from IRS which helps with this compliance effort.
The second category, and frankly the more complex issue, is the “crowdfunding” taking place through internet sites. The term “crowdfunding” is actually an IRS term relating to sites like gofundme.com. The IRS guidance is vague at best.
Rauschenberger linked me to this explanation which concludes that crowdfunding revenues aren’t taxable income as long as they are:
- A loan for which repayment is expected
- A purchase of equity interest in an entity
- A gift made without any expectation of a return or “quid pro quo”
“In summary, the issue with trying to tax the crowdfunding is the fact that ‘gifts’ are not considered taxable,” Rauschenberger said.
But are the donations really gifts?
I think someone donating to an individual or group involved in #NoDAPL is expecting a return on their money. Namely, obstruction of a pipeline and other sorts of political activity.
If those receiving the money didn’t use it in attempting to block the pipeline I think those giving the money would be upset. They’d feel cheated.
That certainly seems like a quid pro quo relationship to me. That seems like one person paying another person in pursuance of a specific endeavor.
“I think that’s a great question. One of the issues we have, based on the federal definitions of income, it’s difficult for us to say ‘yes or no’ without guidance from the IRS,” he said.
He pointed out that the origins of online crowdfunding had a lot to do with friends and families collecting money online for someone’s medical expenses, something I think most of us don’t want taxed.
“Now it’s being used for things like a gift to those who are protesting,” Rauschenberger said. “It’s a gray area. You could be using GoFundMe as a work around to avoid taxes. I fully think that it’s in a gray area and needs to be looked at. I believe the Attorney General has been asked similar questions about whether this is illegal activity.”
Rauschenberger said he has told lawmakers he plans to look at the situation with 1099’s which would have to be issued by any entity paying people to protest.
“If they’re directly paying people to go out and protest they have to issue 1099’s. The question there is, I’ve heard stories about them issuing debit cards so there’s no paper trail. It goes deep,” he said.
But he said overall the issue of enforcement has to be considered as a sort of cost benefit analysis.
“Our rates are so low, individual income tax rates, you could go after some of this money and maybe some of it would be determined not as gifting, but how much would you get?”
“We could look and follow the money but would it stand up in court? What kind of dollar amounts are we actually talking about?” he added.