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(NSA Public and Media Affairs)
Meet Zack "Danger" Brown. He's shot to Internet fame for successfully funding a Kickstarter campaign nobody had previously imagined.
His goal? Making potato salad. That's it. His innovative, ambitious plan so tickled the fancy of America's crowdfunders that he raised tens of thousands of dollars to whip up the dish.
There's just one catch: taxes.
Yes, crowdfunding is income, just like a paycheck. And income means government gets involved.
In Brown's case, that has meant a tax bill in the tens of thousands of dollars, according to some calculations. In an analysis for the Tax Foundation, Scott Eastman determined that Brown's tax bill would top $21,000 if all his pledgers come through with the cash.
Kickstarter collections can dwindle when some backers flake out, so Brown's final bill is likely to be lower than that. But it's still dramatically higher than many would expect, or believe fair.
That's because common sense tells us that Brown didn't rake in all that money because he's working for those who pay him. In fact, we intuit that he really wasn't paid for what legal scholars and attorneys term "good and valuable consideration."
Yes, Brown did promise to reward his backers with amusing prizes triggered by how much money they pledged. Send him a dollar, for instance, and he'd say your name aloud while preparing the side dish.
But is this kind of transaction akin in any way to one that produces taxable income?
Some analysts say no. As tax attorney Kelly Phillips Erb explains at Forbes, Brown isn't a charity, but he is, in all likelihood, the recipient of funds the tax code would recognize as mere gifts.
Erb suggests she'd argue that the gratuitous intent of Brown's backers, coupled with the low value of their contributions, signals an expectation not to be better off in any tangible sense for having funded the potato salad.
Many likely don't believe they'll really receive their rewards. Instead, they simply wish to partake in the intangible pleasures of a rather silly, but life-affirming, Internet game.
Shouldn't that kind of activity be shielded from the full force of federal taxation?
Unfortunately, Brown is in a gray area.
Crowdfunding has laid bare the reality of how informal, fleeting and nontraditional economic relationships can be in our everyday lives. The fabric of a robust economy can't be cut up neatly into the kinds of squares that fit IRS regulatory patterns.
That doesn't mean Brown should gleefully evade his taxes. It does mean that tax reform in the direction of a simpler, more recognizably human system will be of more benefit to Americans.
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