Cona Elder Law


The Potential Perils of Crowdfunding Donations

August 30, 2017

Jennifer Cona and Dana Walsh Sivak

​​The rise and prevalence of social media has led to an increased sense of community across the globe. Through the daily posting of photographs, videos, and news stories on social media, we share in the joys of new babies, new homes and new jobs, as well as the tragedies that befall us, like an unexpected illness, financial crisis or death of a loved one. Thanks to this new sense of community, it has become more common to contribute financially to those in need through fundraising campaigns which are shared on social media.

This is accomplished through "crowdfunding," defined as "the practice of obtaining needed funding (as for a business) by soliciting contributions from a large number of people especially from the online community" (see "crowdfunding" at Unlike crowdfunding for business purposes, websites like and allow individuals to quickly and easily start fundraising campaigns, proceeds from which are often donated to individuals or families in need. boasts having raised over $500 million through fundraisers, with raising over $3 billion. Crowdfunding donations have offered invaluable help to thousands of people who have unexpectedly fallen on hard times.

However, the practice of crowdfunding donations remains largely unregulated, with little guidance as to how to resolve issues that may arise in the course of a fundraiser organized through a crowdfunding site. Most problems arise because well-meaning friends and relatives were unaware of the negative consequences that can result from a crowdfunding campaign and therefore failed to plan ahead to avoid them.

Medical Crowdfunding

Unintended negative consequences are particularly acute in medical crowdfunding cases, where donations can fill the gaps that exist among expenses otherwise covered by medical insurance. While contributions toward medical and ancillary expenses can be enormously helpful to recipients experiencing a health crisis, Michael Young and Ethan Scheinberg of Harvard Medical School warned in their recent article in the Journal of the American Medical Association titled "The Rise of Crowdfunding for Medical Care: Promises and Perils" (JAMA 2017; 317(16):1623-1624, April 25, 2017) that medical crowdfunding "raises a constellation of ethical and legal hurdles for patients, clinicians, institutions and society." Among these is the potential ethical and legal dilemma faced by doctors of patients who share medical information on a crowdfunding website, which may be untrue or exaggerated in an effort to garner sympathy and motivate donors. Doctors must weigh their legal obligations under the Health Insurance Portability and Accountability Act (HIPAA) to maintain patients' privacy against their desire to prevent fraudulent or deceitful acts which could negatively impact others in the community, particularly when the doctor is asked to provide clinical information in support of the fundraising campaign.

Moreover, with a significant number of beneficiaries of medical crowdfunding relying on some form of means-tested public assistance, such as Supplemental Security Income (SSI) or Medicaid benefits, special care must be taken to avoid gifting such individuals large sums of money, which could negatively impact their eligibility for much needed benefits.

In New York, a windfall payment such as proceeds from a fundraiser is treated as income in the month it is received. This can potentially cause a recipient to become ineligible for Medicaid or SSI for at least one month. (92 ADM-11, March 6, 1992; see also "What you Need to Know When You Get Supplemental Social Security Income (SSI)," SSA Publication No. 05-11011) The recipient may then be forced to use the funds raised by crowdfunding to pay for medical care which otherwise would have been covered by government benefits. As such, the crowdfunding monies are not available to cover additional or ancillary expenses, as was intended. If not managed carefully, such as in an irrevocable trust managed by a third party, these funds coming into the beneficiary's hands may do more harm than good.

Tax Consequences

Crowdfunding donations may also cause negative tax consequences for the organizer and/or the recipient, depending on how much is raised and where the funds are deposited. While the IRS has not provided clear guidance as to how monies received by a party through crowdfunding donations may be treated, the IRS has issued an Informational Letter addressing certain tax implications involving crowdfunding, albeit without speaking directly to the issue of donated funds. (IRS Letter, No.: 2016-0036, March 30, 2016.) While the letter states that "crowdfunding revenues generally are includible in income if they are not … gifts made out of detached generosity and without any 'quid pro quo'," the IRS falls short of explicitly declaring crowdfunded revenues in general to be exempt from taxation as income. Id. Rather, the letter concludes that "the income tax consequences to a taxpayer of a crowdfunding effort depend on all the facts and circumstances surrounding that effort." Id.

Thus, while the handling and transfer of funds would likely be declared a tax-exempt gift, the transfer of funds from the organizer to the beneficiary could be deemed a taxable event if the funds are over the gift tax exemption threshold. The limited guidance the IRS has provided on the subject makes clear that whether these funds are taxable or not is based on the specific facts and circumstances surrounding the transaction(s).

Organizers Risk Legal Action

In addition to the potential tax implications, the organizer of the fundraiser campaign can inadvertently subject herself to a host of legal repercussions if a dispute arises from her administration of the fundraising campaign or handling of funds.

In several cases, fundraising campaign organizers have been sued for defamation or fraud based on language used in the fundraiser. In one such case, Watson v. Fore, 2012 WL 3812498 (Fla. Cir. Ct., Aug. 21, 2012), a woman soliciting donations for legal expenses in a child custody dispute was sued by her estranged husband for portraying him as a "deadbeat dad" in a GoFundMe fundraiser. In another case, Liese v. Delio, 2016 WL 7325648 (M.D. Fla., March 21, 2016), a jury found the plaintiff's account of events unreliable based on the plaintiff's exaggerated claims regarding his injuries and medical expenses on a campaign he had set up for his own benefit.

In some cases, entire fundraisers are created under false pretenses, manipulating the kindness of strangers to fraudulently enrich oneself. For example, a woman was indicted on federal charges of bank fraud and wire fraud for, inter alia, soliciting donations of more than $35,000 on GoFundMe by falsely claiming she had cancer (see "Shelby County Woman Indicted for Raising Money on False Cancer Claim," 2017 WL 2276739 (DOJ)). In addition to federal criminal charges, New York's penal law contains a number of criminal charges which may be appropriate in these circumstances, including the crime of "scheme to defraud" pursuant to Penal Law §190.60 (a misdemeanor) or Penal Law §190.65, where $1,000 or more is raised (a felony).

My law firm recently handled a dispute arising from a fundraiser designed to raise funds for the payment of "funeral expenses" for the organizer's friend. The language in the campaign description was vague and did not address how additional funds, if any, raised in excess of the amount needed to cover the funeral expenses would be disbursed. More than $14,000 was raised, exceeding the costs of the funeral by several thousands of dollars. A dispute arose between the decedent's long-time girlfriend and the decedent's family members regarding who was entitled to these additional funds. As the funds didn't belong to the decedent during his lifetime, the laws of intestacy were not available to guide the parties, nor was there any clear legal authority to rely on in determining the rightful "owner" of these funds. The organizer sought guidance from's customer support, who advised simply that the organizer was in control of how the funds were to be disbursed. Ultimately, a settlement agreement was reached, with the decedent's family member receiving reimbursement for documented funeral expenses and the remaining funds being disbursed to the decedent's girlfriend.

More Oversight and Guidance Needed for Organizers

To call this a "gray area" of the law would be an understatement. While the spirit of a community coming together to help one another in times of need is inspiring and commendable, a person organizing a crowdfunding campaign should be able to do so without fear of legal repercussion. There must be more legal guidance and oversight available to campaign organizers, particularly when disputes arise.

Until then, great care should be exercised when creating a crowdfunded campaign. The beneficiary of the funds should be clearly identified as well as the intention behind the campaign, which could show the donors' belief should a dispute later arise. The potential use of any additional funds raised should be addressed as well. The organizer must also avoid using language which could be viewed as exaggerated, untruthful or defamatory, particularly when raising money for the victim of a crime, or to fund legal expenses, which may be difficult when emotion is driving one's efforts. Finally, funds should be carefully managed and disbursed with special attention to preserving the recipient's eligibility for government benefits, such as Medicaid or other public assistance. When substantial funds are raised which may result in potential tax consequences or impact Medicaid eligibility, a lawyer should be consulted before funds are disbursed to protect all parties involved.

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About the Author Cona Elder Law

Cona Elder Law is a full service law firm based in Melville, LI. Our firm concentrates in the areas of elder law, estate planning, estate administration and litigation, special needs planning and health care facility representation. We are proud to have been recognized for our innovative strategies, creative techniques and unparalleled negotiating skills unendingly driven toward our paramount objective - satisfying the needs of our clients.

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