AGs and IRS Crack Down on Crowdfunding Programs

AGs and IRS Crack Down on Crowdfunding Programs

The organizer of a crowdfunding campaign in response to a Minnesota police shooting will have to pay back $120,000, according to a settlement agreement with the Minnesota attorney general’s office. The funds will be distributed to local schools to pay off the meal debts of children in need, which was the original intention of the campaign.

Pamela Fergus organized an online fundraiser called “Philando Feeds the Children”, which was meant to raise money to pay off local students’ lunch debts, but authorities say she kept most of the donations instead.

The agreement, filed in the Ramsey County District Court, also permanently bars Fergus from handling charitable funds. She will have to make monthly payments of $200 for 20 months, then pay the balance of $111,600 by March 3, 2024, when she has access to her retirement funds.

The Charities Division of the Attorney General’s Office sued Fergus in June 2021 for failing to properly spend all of the money it raised on Philando Castile’s behalf. About $200,000 was raised to relieve student debt at St. Paul Public Schools, but only about $80,000 was donated for this purpose. The fundraiser began as a semester-long classroom service project for an undergraduate class taught by Fergus, a professor at Inver Hills Community College and a faculty member at Metro State University, authorities said.

Under Minnesota law, people who raise more than $25,000 or meet other conditions must register and file specific documents with the attorney general’s office.

Castile was fatally shot by police during a traffic stop in July 2016 near St. Paul, Minnesota. He worked in St. Paul Public Schools as a school cafeteria worker and often paid for lunches for students who owed money or could not afford to pay. . the Philando Castile Relief Foundationwhich focuses on paying school lunch debt and combating gun violence in the Minneapolis area, is a 501(c)(3) registered charity created in part from a civil settlement between the family of Castile and the town of St. Anthony.

The Internal Revenue Service (IRS) recently published guidelines regarding the tax treatment of funds raised through crowdfunding.

The crowdfunding website or its payment processor may be required to report cash distributions collected if the amount distributed meets the reporting thresholds by filing Form 1099-K. If this form must be filed with the IRS, the crowdfunding website or payment processor must also provide a copy of the form to the person to whom the distributions are made.

Prior to 2022, the threshold to file and provide a Form 1099-K was met if, in a calendar year, the total of all payments to an individual exceeded $20,000 in gross payments resulting from more than 200 transactions or donations . For calendar years beginning after December 31, 2021, the threshold is met if, during a calendar year, the total of all payments distributed to an individual exceeds $600 in gross payments, regardless of the number of transactions or of donations.

The US bailout clarified that crowdfunding websites or their payment processors are not required to file Form 1099-K with the IRS or provide it to the person to whom distributions are made, if campaign contributors do not receive any goods or services for their contributions. .

If a crowdfunding website or its payment processor distributes money raised that meets the reporting threshold and campaign contributors received goods or services for their contributions, a Form 1099-K must be filed with the IRS. If distributions are made to the crowdfunding organizer, a copy of the form must be provided to the organizer. If distributions are made directly to individuals or businesses for whom the organizer has solicited funds, Form 1099-K must be provided to those receiving amounts that meet the reporting threshold.

Crowdfunding organizers and anyone receiving crowdfunding monies must keep complete and accurate records of fundraising and disposition of funds for at least three years, according to the IRS.

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