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The Unspoken Peril for "Citizen Journalists" Surprise! You Owe the IRS Some Gift Tax! The Unspoken Peril for “Citizen Journalists” Surprise! You Owe the IRS Some Gift Tax! Is the “donation” of a citizen’s content (video, articles, commentaries, images) to for-profit media outlets that exceeds a fair market value of $12,000 in any single year subject to gift tax? Judging from the IRS guidelines, the answer is “yes.”

This is a surprise, and an unwelcome one.

Before people panic, however, we should keep in mind that — given the typical freelance rates paid by media outlets these days — you’d have to spent a lot of time sending stories to large media organizations before you’d be even potentially liable for gift taxes.

The good news is that it won’t affect in any way the occasional contributor, or even a frequent contributor to nonprofit or low-traffic sites, and it has no bearing whatever on your own work on your own blog, period.

More important, it’ll help get people thinking harder about financial implications in general. The business model that says “You do all the work and we’ll collect all the money” has always been a lousy one, not to mention unfair. Now, if that turns into “You do all the work, we’ll take all the money and you’ll pay taxes on what we don’t pay you,” the citizen journalists will look even harder at this unbalanced state of affairs.

0 Comments on “The Unspoken Peril for "Citizen Journalists" Surprise! You Owe the IRS Some Gift Tax!”

  1. #1 NM
    on Jan 14th, 2009 at 5:45 am

    This article is absolutely wrong.
    Two words for you: Free Software (as in Free Software Foundation)
    Another two words: Creative Commons.
    I’m typing this message on a Linux computer, full of libre software that is available to anyone on internet free of charge, to use, distribute, copy, modify and improve.
    I have a few servers of my own in a datacenter running Linux, the PostgreSQL database server and quite a few other pieces of software. Doing the same with Microsoft product would easily cost over $20k. Do you think the Linux Foundation or the Postgres Developer Group owe the IRS any money because I downloaded their stuff for free?
    That is just ludicrous.

  2. #2 Rhonda R Shearer
    on Jan 14th, 2009 at 7:11 am

    Dan, Thank you for this intelligent and helpful post regarding this issue has raised. I wanted to respond to NM.

    NM–Let’s break it down. Receiving free software from a not-for-profit and software sharing program is not the same as giving your work to a for-profit media company.

    FOX News et al will not only fill minutes using your work for no cost (and no payment to you) –but this bottom-line increasing model replaces work formerly done by their paid staff. Even worse they will RE-SELL your work to others for a profit and give you NOTHING. They even reserve the right (if you read the fine print in the Terms of Use contract) to SLAP THEIR NAME ON YOUR WORK as if they made it !

    Dan put it very well above. “You do all the work, we’ll take all the money and you’ll pay taxes on what we don’t pay you.” Indeed as Dan said (qualification mine) “the citizen journalists will [should] look even harder at this unbalanced state of affairs.”

    BTW: I just got off the phone with my daughter (a phootjournalist) who mentioned that the next phase of the “gimme gimme more” corporate media culture will likely be born from their bean counters thoughts…”hummm, our citizen journalism is so successful. We are filling hours and hours each month for no cost. Why don’t we start CHARGING citizen journalists to be on air…and call it a service” Time to take a hard look and a stand NOW. What citizen journalists do HAS VALUE. Why do you think the media is using you stuff if it didn’t?

  3. #3 Jon Garfunkel
    on Jan 14th, 2009 at 11:21 am

    NM: The gift tax only applies to individuals, which Linux Foundation and Postgres Developer Group are not.

    The purpose of the gift tax is to close the loophole of people liquidating their estate while they are alive to avoid estate taxes. It applies to money, assets, and property — anything that is transferable.

    From my reading of the IRS guidelines, it is an extreme stretch to include labor/services as a taxable gift, way beyond the intent of the law. Your labor has no value after you die, so it is not taxable.

    (I am not a lawyer, but this is my reading of the law.)

  4. #4 The Enlightened Redneck » Free Content May Cost You
    on Jan 14th, 2009 at 12:36 pm

    […] citizen media expert Dan Gillmor said odds are slim that the dreaded federal gift tax will hit most amateur reporters. He also […]

  5. #5 M Able
    on Jan 14th, 2009 at 12:56 pm

    Labor might not have value after death but intellectual property does such as articles, photos or film so it is taxable

  6. #6 Jon Garfunkel
    on Jan 15th, 2009 at 12:12 am

    If this were a *real* problem, wouldn’t it have been brought up with regard to Academic journals years ago?

    Reed Elsevier made €1 Billion last year, from 500,000 authors. That’s a “gift” of €2,000 an author, or $2,600 today. If an academic submits enough articles, they’d conceivably hit the $12K limit…

    Isn’t it possible that the appraiser firm cited in the article has an interest in scaring up business?

    From IRS Revenue Ruling 80-196, the test for a gift is a “valid business reason”– also more widely known today as the economic substance doctrine. Basically, if the *primary* reason for “donating” an article to the Huffington Toast was for tax purposes, the IRS wouldn’t allow it. That not being the case, the IRS will not care.

  7. #7 Rhonda R Shearer
    on Jan 16th, 2009 at 7:04 am

    Do you think there is a valid business reason to give a for-profit media enterprise your valuable news video (say, for motives of business or self -promotion) when you know the media co. will later re-sell it , keep the rights for themselves and sue others if you violate them and you get nothing? Especially when among the alternatives are:
    a. making it free for everyone like on Twitter or You Tube (you get your promotion, correct? And these companies do not have ownership to your property
    b. sell it

    Your other point…that if it were valid idea (the possible threat of gift tax) someone would have thought of it before…er logically eliminates the possibility of anyone EVER coming up with a new insight or idea…because everything has been thought of before and no one misses the obvious—but we know that is not true.

    The other point about academic publishing is another matter. Text books make money and authors are paid royalties and sometimes advances. Not many journals I know of are for profit ventures. I also question those…but that is another matter. There are two traditions here.

    The media traditionally pays for content and sells it. They are trying to change the tradition to –They don’t pay for content and sell it.

    Citizen Journalist have other options that to put up with this. They can give content away –and let everyone share it . If your motive is getting your work “out there” –Does it make sense to give it to media where they control YOUR work and sell it and you get nothing?

    We are working on follow-up reports on this and related topics. More from accountanting and tax experts soon.

    You asked me in an email if I thought the IRS would go after citizen journalists? Our point is : Under existing gift tax rules it certainly seems like they could–and that is important for people to know and discuss. Further investigations into the matter must be made as the citizen journalism and media law experts said in our report.

    Finally, you are questioning the possibility dark and greedy money motive of the appraisers we quoted. You are suggesting that they would possibly say something false to gain business—in other words risk saying something wrong just for possible gain…But at the same time of this sensitive concern over possible hidden greed and deceptive motives, you are defending the media companies practices that are exploiting citizens? Practices that include fine print “terms of use” contracts that allow them to falsely claim that citizens creative works were made by them? That’s okay with you?

  8. #8 Jon Garfunkel
    on Jan 16th, 2009 at 4:36 pm

    Sorry, I don’t see any potential for the IRS worrying about this. If you can find an example of someone donating $12,000 worth of labor to another private entity in order to avoid paying the taxes on it, tell us about.

    Who said I was defending the media companies “exploting citizens” at all? I was just saying that the gift tax issue is a non-issue.