Gofundme for someone else's health expenses

[nash123456]

Hi all,

Our family started a gofundme campaign for our cousin's baby for an extremely expensive treatment in the US. We could not open up the campaign in the baby or parents' names or name them as "gofundme beneficiary" because they are living abroad. The campaign is over, luckily they were able to collect enough through this gofundme campaign (partially) and other sources to visit the US and get the treatment done. At the time, at the advice of a tax expert, we opened a separate non-interest bearing account at the bank to receive the gofundme campaign funds, so there is no co-mingling with our personal accounts. The entire amount of funds in this bank account was wired directly to the hospital administering the treatment, and we are about to receive the statement from the hospital that shows these partial funds were received directly from that bank account. 

At the time when the donations were coming to gofundme, we had donors entering their information and making payments themselves using the gofundme page, and there were also some offline donations that were made to the family which were entered as “offline donations” on the gofundme page, so that people could see how much in total funds were collected for this cause. The reason I am mentioning this is because the gofundme page shows much more money collected than the money that was collected in the bank account that we opened. In addition, some people could not use gofundme platform so sent funds via paypal, showing up in the bank account also. So in short, the money that was wired to the hospital consisted of funds that were wired from the bank account (gofundme and paypal donations) and the family member’s own bank account, together made up the whole amount needed for the treatment. 

The tax expert told us that at the time of filing our taxes we should write a very detailed letter to the IRS explaining the circumstances (we are collecting the funds for our close family member, to be sent directly to the hospital for treatment), include all receipts and statements, cross-reference dates of transactions so that we do not receive a letter from IRS stating we owe taxes on these donations. The bank statement shows the exact amount wired to the hospital, and that line item shows the patient’s name. We also remember that she stated we should enter this donation amount collected under the bank account under "Other" and then deduct the exact amount to bring the tax liability to zero for this transaction. 

We are still gathering all the paperwork and will run this by the tax expert again as we are  filing our tax return, but have a few questions to the community here:

- On what TurboTax screen do we enter these funds, and what screen do we deduct?

- It appears from these forum entries and other internet resources that gofundme sends a 1099 for transactions like these. We haven't received a 1099 from gofundme yet. Has anyone received a 1099 from (we believe 1099-K) from gofundme? 

- Since we will need to attach the letter to IRS and the backup documentation, how do we file our taxes? Do we enter all of our information, pay for the filing but then print and send it in mail? What are the exact steps for this?

- What are your suggestions on how to explain this in the letter to IRS? Has anyone had any good experience with certain wording for this or standard language that is used to help IRS understand the circumstances, especially with the amounts wired to hospital from our bank account vs. the entire gofundme amount?

- Any other insight or helpful hints from folks who may have done this in the past?

Thank you in advance. 

[Bsch4477]

Generally, donations made to GoFundMe campaigns are considered personal gifts, and as such, are not taxed as income. ... In most instances, the organization will not report your donations as income at the end of the year, nor will they issue any tax documents.

[nash123456]

Thank you for your response. I realize this is a pretty new topic when it comes to tax laws. The only reason I was wondering about the 1099-K was because I thought I read it in their FAQ at some point - it looks like they issue a 1099-K because they accept payments:

https://www.journalofaccountancy.com/issues/2018/mar/dona[product key removed]funding.html

"Under Sec. 6050W, payers are required to send a Form 1099-K, Payment Card and Third Party Network Transactions, to a payee who receives more than $20,000 and has more than 200 transactions during a calendar year. A copy of this form will also be sent to the IRS."

I realize that this is a 2018 article, and there are more recent articles that I will go through before April...

[Bsch4477]

https://www.accountingtoday.com/opinion/gofundme-donations-may-have-tax-consequences

As the article suggests you could report the 1099-K amount as other income and report the same amount again as a negative amount as other income with the text something like “Offset GoFundMe payments on 1099-K”

[Opus 17]

If you receive a 1099, there are two options to deal with it in TurboTax.  One is to enter the 1099, and then enter an offsetting item of negative income in the “other income” section with an explanation such as “correction for nontaxable 1099.“  You will e-file without attaching any supporting documentation. If the IRS later send you a letter, you would send them the details.

The other option is to leave the 1099 off of your return and filed by mail. Attach a copy of the 1099 and a brief written statement explaining why this does not represent taxable income to you.  Do not send detailed proof, but keep the detailed proof with your important financial records for at least three years in case of audit.

The other concern to raise is that money that is gifted directly to pay for someone else’s medical expenses is never a charity donation, even if the person is needy.  Hopefully you were not giving donation receipts that indicated this was a tax deductible medical or charity donation, if you did, you could be in serious difficulty later.

[nash123456]

Thank you Bsch4477 and Opus 17.

"The other option is to leave the 1099 off of your return and filed by mail. Attach a copy of the 1099 and a brief written statement explaining why this does not represent taxable income to you."

Just wanted to get clarification on this: Basically you are saying do not enter any numbers in the tax return from the 1099, but still include a copy of the 1099, with the explanation, right?

"The other concern to raise is that money that is gifted directly to pay for someone else’s medical expenses is never a charity donation, even if the person is needy.  Hopefully you were not giving donation receipts that indicated this was a tax deductible medical or charity donation, if you did, you could be in serious difficulty later."

I should have been more clear on this - maybe donation is not the right word. No, we did not give out receipts or imply in any way that this was a medical or charity donation. So maybe to use the right terminology in our statement to IRS we should refer to this as "support funds" instead of "donations?" 

[nash123456]

Bump?

[LenaH]

Yes. You could choose either of the methods described by Opus17. If you choose Option 2 and mail in your tax return, you can leave the 1099 off your return in TurboTax. However, you will have to send the 1099, along with an explanation, in the envelope with your tax return. I will also advise to mark every page of your additional paperwork sent with your return with your name and social security number. 

As previously stated, funds received through a GoFundMe account are not a charity donation because the IRS has strict guidelines on what constitutes a charitable contribution. 

However, this is still considered a donation and you can use that terminology in the explanation to the IRS. 

@nash123456

[nash123456]

Thank you Lena! Appreciate the suggestions and the clarifying the terminology. It's weird, we were thinking we would have gotten a 1099 by now but now my wife got in touch with gofundme and they are saying gofundme would not be sending us the 1099, but the entity accepting the electronic payment. We do not know that that means. I guess we'll wait a bit longer before we file our taxes. 

[nash123456]

One last question - we never got a 1099 but I'm still going to attach an explanation to my Federal return, - do I have to attach the same package to my State return too? Or leave it out? 

[Opus 17]

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@nash123456 wrote:

One last question - we never got a 1099 but I'm still going to attach an explanation to my Federal return, - do I have to attach the same package to my State return too? Or leave it out? 

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If you received no tax paperwork, then I would not attach any documents to your tax return, and don't mention the money at all, either federal or state.  Keep your documentation in case of audit for at least 3 years.  But if the income has not been reported to the IRS in the form of a 1099, there is no reason for you to attach a statement that will bring the issue to anyone's attention.