RE: Are Steemit Author Rewards a Non-Taxable Gift in the U.S.?
So it seems to hinge on intent of the giver. That seems so open to interpretation. It seems like there would be some cases when upvotes, or their equivalent, should be gifts.
Is there a limit at which curation rewards are so small that they are inconsequential? That is, the curation rewards are obviously so small, or so disconnected from a clear potential for reward, that they are not the reason for my upvotes. Or can I just say that my intent for curation is personal, and not for business or investment? I'm thinking of real-life analogies.
My dad gives me a subscription to Outside magazine for Christmas. But with your interpretation, it's not really a gift, because he gets a little pocketknife from them for renewing each year. It sounds like I'm supposed to declare that subscription as property income. That seems more severe than the IRS intends, especially with friends and family.
When I visit my grandmother, she gives me gas money to drive home. When I'm there, I do a lot of chores that she cannot, and would have to pay someone to do. She would not give me the gas money if I didn't visit. But everything stems from our prior relationship. Would that cross-over to upvoting for friends and family here on Steemit?
If I set someone on autovote, but never read their posts, is that a gift? Even if they are family, or friends? Or is that too dependent on them producing something? What if I set up a recurring monthly transfer, that does not depend on their production?
I appreciate you providing a place for all of us to think about the tax implications of what we do here. It does seem like there is a continuum of 'taxableness' of activities on the blockchain, just like in real life. It will be interesting to see how this all evolves over the years. And I hope that people don't get burned by not considering taxes! Thanks!
All great questions and to be honest there remains much uncertainty in applying historic tax law to internet transactions. But let me give my best shot at the friends/family point, and then link to an interesting article on crowdfunding (which discusses the significance of contribute-for-reward arrangements in the context of US tax).
On one hand - in theory it should be easier to substantiate a gift from a family member (presumably the family member is available to testify). In the minister court case, lack of friends/family relationship was a negative fact against the arbitrary payments.
On the other hand, let's ask the question one level deeper - is the upvoter really the person giving the SP/SBD to the author? We could also consider that Steem tokens come from the Steem network, not from upvoters. Upvoters simply help determine the allocation of a fixed set of post rewards that released by the Steem network. In the future, it is uncertain whether the IRS will recharacterize all Steemit activity as a component of mining. The IRS Notice 2014-21 which taxes mining is really aimed at proof of work mining structures. However technically Steem is under the DPOS model the block producers are the witnesses who only receive 10% of the allocation of tokens, and the remaining 90% of rewards are released to content creators/curators who are "voted" into their tokens based on the stake-weighted voting of Steem. What's my point? - Well if the friends/family are "upvoting" my content, they aren't really "giving me" the rewards, because the rewards technically aren't their sole entitlement to give (a whale could wipe the impact of their vote out via a flag) - the friends/family are just helping my chances.
I will leave you with an article I have enjoyed from time to time, related to crowdfunding, another developing area with uncertain tax treatment. It briefly discusses the gift concept when some valued reward is received in return for contributing to a cause.
https://www.journalofaccountancy.com/issues/2015/oct/crowdfunding-and-income-taxes.html
I appreciate you continuing adding to the discussion and keeping the conversation balanced, as I am just one person's opinion in this uncertain area of tax.
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post does not create a client relationship between the author and the reader.
Thanks for that thoughtful answer, @cryptotax. Your description of how Steemit works - as the reallocation of fixed rewards released daily by Steemit, Inc - is the clearest and cleanest argument I've seen so far, about why our curation rewards are taxable. I read both your articles about crowd-funding (thanks for their links). It does seem like their could be multiple interpretations of the rewards for articles. Although, since authors can't get author rewards without writing something, does make it harder to be a patron of anyone -- to give them a recurring gift. The structure just isn't there, like on Patreon where the system allows monthly giving, and not just production-unit-based giving. But I bet someone figures out how to do that on the blockchain before too long, lol.
It's inconvenient to have to pay taxes on our Steemit earnings. But it's not terrible. Depending on what we write about, there should be plenty of opportunities for deductions. I have an LLC for my YouTube videos, that is broad enough to cover my Steemit writing, too. But being paid in property, while having to pay taxes in US dollars, is not ideal. I appreciate all your perspectives, for sure!
Also, I came across a more recent article on crowdfunding, coincidentally came out this month:
https://www.journalofaccountancy.com/issues/2018/mar/donation-based-crowdfunding.html
Thanks! That was helpful, too.