03 October 2022 - Firm News
This paper, as originally published in the October 30, 2017 issue of Tax Notes, focuses on the unintended tax consequences affecting people who establish crowdfunding campaigns to obtain gifts and donations for social, civic, charitable, or personal causes.
Around 2010, during the recession and government bailouts of corporate banks and automakers, a type of social-civic “bailout” by private citizens known as “crowdfunding” emerged. According to the website YouCaring, crowdfunding is defined as “the practice of funding a project or cause by raising money from a large number of people, typically through the internet. It is a form of peer-to-peer fundraising that harnesses the power of social networks to raise awareness and draw donations from around the world for online campaigns.”
Given the ease with which one can reach a large number of people using the internet, online crowdfunding has grown exponentially in recent years and has emerged as a common way for individuals to seek financial assistance from others. A 2016 Pew Research Center report found that about one in five Americans have contributed to an online fundraising campaign. Three percent of Americans have established an online fundraising project. The Pew Research Center report also says that 68 percent of donors have contributed to a campaign seeking to help a person facing a hardship or financial challenge.
According to the research firm Massolution, worldwide crowdfunding grew to $16.2 billion in 2014 — a 167 percent increase over the $6.1 billion raised in 2013. In North America alone, crowdfunding volumes grew 145 percent, to $9.46 billion, in 2014. Solely donation- or gift-based crowdfunding grew 45 percent in 2014. Continuing the trend, the crowdfunding industry grew again in 2015, reaching $34.4 billion and more than doubling the previous year’s volume. This growth is expected to continue, and it has been projected that the global crowdfunding market will increase to between $90 billion and $96 billion by 2025.
GoFundMe is the world’s largest social fundraising platform and the top personal fundraising website. Launched in 2010, the company has helped raise more than $4 billion through more than 40 million donors. People have raised more money on GoFundMe than through any other crowdfunding website. The largest online campaigns in 2016 arose from news events and natural disasters. GoFundMe reports that in 2016, $9 million was raised for victims of the Pulse Nightclub shooting in Florida, $11.2 million was raised to support Louisiana flood victims, $3 million was raised to support Hurricane Matthew victims, and $7.8 million was raised to support Standing Rock protesters. According to the report, “starting a GoFundMe in response to pivotal moments has become part of our social fabric.”
Other companies providing online platforms for fundraising include YouCaring, which acquired GiveForward; Fundly; Indiegogo; FundRazr; Kickstarter; iFundWomen; Rally.org; Custom Ink Fundraising; and others. These companies provide platforms for people to establish different types of online fundraising campaigns. Many campaigns seek gifts and donations for social, civic, charitable, or personal causes, while others seek funding for businesses, real estate, arts and entertainment, and the like.
Click here for the full article, as originally published in the October 30, 2017 issue of Tax Notes.