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Tax Implications of Crowdfunding

In an information letter published in July of 2016, the IRS explained its current position on the tax treatment of crowdfunding by looking to general principles of income inclusion.

In the Letter the IRS explained that under Code Sec. 61(a), except as otherwise provided by law, gross income includes all income from whatever source it is derived. Gross income includes all funds, whether realized in the form of cash, property or other economic benefit. However they noted that some benefits that a taxpayer receives are excludable from income, either because they do not meet the definition of gross income or because the law provides a specific exclusion for certain benefits that Congress chooses not to tax.

The Service goes on to note once income has been received it can be considered for tax purposes. Reg. §1.451-2, sets out the “constructive receipt” doctrine and stipulates that income, although not actually “reduced to a taxpayer’s possession” (e.g. physically in the recipients hands), is constructively received by him in the tax year during which it is credited to his/her account, set apart for him or her, or otherwise made available so that he/she may draw upon it at any time, or so that he/she could have drawn upon it during the tax year if notice of intention to withdraw had been given. (read more)

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