Is a gift always a gift on both ends?

Question

Suppose some person with a lot of cash jumps into a Twitch stream they like and gives the streamer $20000. (This would be on the high end for Twitch donations, but nowhere near record-setting.)

From the giver's end, this seems like a gift. They receive nothing in exchange for the contribution beyond a brief "holy crap, thank you so much!", and maybe, like, a sub emote named after them or something. $20000 is above the annual gift tax exclusion (currently $15000), so it seems like the giver would need to count $5000 against their lifetime gift tax exclusion, and possibly pay gift tax if their lifetime exclusion has run out.

From the recipient's end, things look different. Streamers are legally required to pay income tax on income from their streams, including from donations such as this. The recipient of a gift does not need to pay income tax on the gift (the giver pays gift tax instead), so from the streamer's end, this doesn't seem like a gift.

---

That's the (hypothetical) scenario that motivated this question, but not the only case where two sides might have trouble agreeing whether something is a gift.

All resources I've found seem to assume that a transfer is legally either a gift or not a gift - I've never found anything that considers the possibility that a transfer might be a gift on one end and not a gift on the other.

For the purpose of determining gift and income taxes, assuming both sides are in the US, is it possible for a transfer to only be considered a gift on one end? What taxes apply in the above scenario?

Answer 1

I don't believe any situation can exist between individuals where an amount would be rightfully considered a taxable gift from the giver and taxable income to the recipient. People may argue about whether or not an item is a gift, but I've never seen any portion of tax code that indicates something can be both a gift and not a gift at the same time.

In US tax law double taxation is generally avoided. Counting a payment as a gift subject to gift tax on the side of the giver and also counting it as income subject to income and/or self-employment tax on the side of the recipient would not be consistent with that principle. A main component of gift-tax is that it is paid by the giver and the gift is tax-free to the recipient, which necessitates an either-or classification.

We've addressed situations where people try to claim a tip is a gift on this question: Reporting monetary gifts as a waiter/waitress? The conclusion is that calling it a gift doesn't change the nature of the tip, a service was performed and money was given as a reward for that service.

Twitch "donations" are typically no different, it's not something for nothing it's pay what you want for entertainment. You posted a guide indicating that streamers income is just that, income. By virtue of it being income to the streamer it cannot also be a taxable gift to the giver.

I said typically because a twitch donation could qualify as a business gift, but business gifts don't trigger gift tax. If one big streamer goes around to smaller streamers/channels and gives donation/tip, those could be viewed as business gifts (but most likely considered promotion/advertisement). A business gift is just an expense to the giving business, so it's not really the same as gifts in the context you asked about. Business gifts are subject to a set of rules about how much can be deducted and whether or not they count as income to the recipients.

Answer 2

First looking at it from the view of the giver of $20,000:

• The receiver isn't a charity, so they won't be writing it off their taxes.
• Because it is above the $15,000 gift limit they must document it if they want to count it as a gift, but that will mean that will require information from the recipient. They giver will either owe taxes now, or eat into their lifetime limit.

From the point of view of the person receiving the gift.

• the system they are using to collect money will be including the $20,000 on the 1099. The software sees it as part of the other income they are receiving.
• To not have the IRS view the $20,000 as income they will have to be prepared to defend the transaction as a gift. The IRS could audit them.

The person receiving the gift has to trust that the giver is filing the gift tax form. The only reason for the giver to submit the form would be to save the receiver on their taxes. Of course they may not want to get involved and face IRS scrutiny.

Answer 3

Unfortunately the answer is almost certainly simply "No, absolutely not".

It's just a payment for a service - exactly like when you pay wait staff a "tip" at a restaurant.

The relationship Twitch viewer <-> Twitch performer is absolutely identical to BTS <-> BTS Concert Goer.

Obviously, when you buy concert tickets to see the boys, that's not a "gift". And if you, say, leave 10 bucks in the jar of a piano player at a hotel, that's also not a "gift" - it's just a normal payment. Exactly as a tip for wait staff is a normal payment.

Further confusion:

Note that a "gift" to a charity is totally unrelated here. (That only applies to actual charities, ie orphanages, homes for dogs with three legs, etc.) (Those are "501c3" organizations in US tax law.)

Even more confusion:

There's another way in tax law that the word "gift" is used - "business gifts". Say you're a company such as TireDiscounters. You give away pens with the logo on the pens. Another example is you're a freelance programmer and at the end of each year you send each client a bottle of scotch. {As a curiosity, these days there's a limit of basically 25 bucks to such "business gifts".} I just noticed online some twitch viewers were asking "Can I claim my tips as a 'business gift'" ... the answer is just No, it's utterly unconnected.

The logical error?

OP, notice you say ...

"They receive nothing in exchange for the contribution beyond a brief "holy crap, thank you so much!" ..."

That's completely wrong, again, exactly like the BTS performance or a waitresses' efforts. It couldn't be clearer that the Twitch celeb is a performer, and that the viewer is a viewer - it's totally cut and dried.

Again - confusion here may be with charitable causes. Sometimes you get a story about Little Johnnie who's dog lost a leg. The story makes it to TV. And some zany and kind Texas Oil Millionaire sends Johnnie a thousand bucks to buy a new leg. That's a charitable act, and Johnnie is not in any way a performer - he was just going about his business when he made national news. There is absolutely no relationship between that scenario and a Twitch performer. (And furthermore if I'm not mistaken, in that actual example the Oil dude can not claim it as a charitable gift - that's precisely why in such situations where donations are needed, someone sets up a 501c3 organization you see? Again Johnnie and the missing leg are just wholly, totally, completely, absolutely unrelated to BTS, waitresses, or Twitch performers/viewers. To repeat, you can not just randomly give someone money and go "oh that was charity" .. the IRS have "thought of that one" :) But once again the Twitch performers/viewer situation is anyway just totally unrelated to a charitable gift .. a Twitch perform is as certainly a performer as BTS or a waitress, and the viewer is as certainly a customer as an audience or diner.)

The summary

• It's completely identical to paying a waiter a tip - that's it.

• The fact that the word "gift" is sometimes used rather than "tip" is totally irrelevant and meaningless. The two ways "gift" are used in tax law are not even vaguely related to the issue at hand.