Sale of Blood or Plasma

[Elle]

Low income folks occasionally sell their blood or plasma and
so have income from it. What is the most appropriate place
to report this on Form 1040, especially if the individual
has no documentation of the transaction?

The best citation I have on this appears in a Feb 29, 1999
post here from "GenePrescot" (sic). Google the archives to
find it. This cits a 1980 case involving one Margaret Green
and a 1986 case involving a John Lary. Googling for these
turns up discussion of a 1979 case involving a Dorothy
Garber. See for example
http://mauledagain.blogspot.com/2006_02_01_archive.html

People can send constructive comments in private to my email
address as they wish. I do not wish to have a long legal
discussion here, because the issues are obviously not
entirely black and white. I want a practical answer. What
line of 1040 does this go on? What if there's no
documentation of the transaction?

 

[Harlan Lunsford]

Low income folks occasionally sell their blood or plasma and
so have income from it. What is the most appropriate place
to report this on Form 1040, especially if the individual
has no documentation of the transaction?

The best citation I have on this appears in a Feb 29, 1999
post here from "GenePrescot" (sic). Google the archives to
find it. This cits a 1980 case involving one Margaret Green
and a 1986 case involving a John Lary. Googling for these
turns up discussion of a 1979 case involving a Dorothy
Garber. See for example
http://mauledagain.blogspot.com/2006_02_01_archive.html

People can send constructive comments in private to my email
address as they wish. I do not wish to have a long legal
discussion here, because the issues are obviously not
entirely black and white. I want a practical answer. What
line of 1040 does this go on? What if there's no
documentation of the transaction?

Briefly speaking, lack of documentation is no excuse for not
declaring this (sometimes self employment type) income.

ChEAr$,
Harlan Lunsford, EA n LA

 

[Han]

Briefly speaking, lack of documentation is no excuse for not
declaring this (sometimes self employment type) income.

ChEAr$,
Harlan Lunsford, EA n LA

We do research on blood components (mainly platelets and leukocytes) and
sometimes ask volunteers to donate some blood. We the reimburse them for
their time and expenses. We (university/hospital) are not allowed by our
funding agencies (such as NIH) to "pay" for the blood that is donated.
Maybe you think this is splitting hairs, but try telling that to the IRB
(Institutional Review Board) that has to approve the consent and HIPAA
forms.

Obviously this is a different scenario than professional blood donation
for payment, but do not color it just black or white (some parts of blood
are really red, others yellow, white, or even greenish, believe me
<grin>).

 

[pleasedontemailme]

Low income folks occasionally sell their blood or plasma and
so have income from it. What is the most appropriate place
to report this on Form 1040, especially if the individual
has no documentation of the transaction?

(snip). I want a practical answer. What
line of 1040 does this go on? What if there's no
documentation of the transaction?

It is sometimes to the advantage of the taxpayer to report this type
of income as self-employment income. The self-employment tax is
generally offset by the earned income tax credit and if the amount of
self-employment income exceeds the minimum set by SSA for the year,
the taxpayer gets credit for four quaters of employment with the
Social Security Administration. One needs forty quarters to later
collect Social Security payments.

Income is reportable regardless of documentation, and in this case,
the income would be reported on Schedule C of form 1040.

-Crystal

 

[Elle]

It is sometimes to the advantage of the taxpayer to report
this type
of income as self-employment income. The self-employment
tax is
generally offset by the earned income tax credit and if
the amount of
self-employment income exceeds the minimum set by SSA for
the year,
the taxpayer gets credit for four quaters of employment
with the
Social Security Administration.

Thank you for this analysis. A few questions:

From http://www.finance.cch.com/text/c60s15d740.asp, in 2007

I understand the minimum business income required for a
quarter of future SS coverage is $1000. Will the SSA credit
one quarter at a time? Your wording that only talks about
four quarters above is a little confusing to me.

I talked with the local plasma center where I live. A client
can donate twice a week for a maximum gross income of $60
per week. So from this source, a taxpayer might have as much
as $3120/year for income where I live.

Income is reportable regardless of documentation, and in
this case,
the income would be reported on Schedule C of form 1040.

To be very clear, Schedule C-EZ is also acceptable (assuming
the taxpayer meets the C-EZ requirements), correct?

Thank you also Harlan and Han for your input. Han, I would
be interested in knowing how your company pays clients for
their time and expenses. Check? Cash? Is there any
documentation (at your business and/or sent to the client)
for tax purposes?

The plasma center where I live pays cash and says they only
document how often an individual has blood withdrawn, so
they can ensure they are not risking their health.

 

[Harlan Lunsford]

We do research on blood components (mainly platelets and leukocytes) and
sometimes ask volunteers to donate some blood. We the reimburse them for
their time and expenses. We (university/hospital) are not allowed by our
funding agencies (such as NIH) to "pay" for the blood that is donated.
Maybe you think this is splitting hairs, but try telling that to the IRB
(Institutional Review Board) that has to approve the consent and HIPAA
forms.

Obviously this is a different scenario than professional blood donation
for payment, but do not color it just black or white (some parts of blood
are really red, others yellow, white, or even greenish, believe me
<grin>).

Time and expense, huh? Well that don't matter a bit; it's still income
to the donor and therefore taxable, no matter what you call it.
Of course if they have any legitimate "expense" (not including food with
which to make the blood as one tried to claim one upon a time), then
that would be deductible against the gross amount.

ChEAr$,
Harlan Lunsford, EA n LA

 

[Han]

Thank you for this analysis. A few questions:

I understand the minimum business income required for a
quarter of future SS coverage is $1000. Will the SSA credit
one quarter at a time? Your wording that only talks about
four quarters above is a little confusing to me.

I talked with the local plasma center where I live. A client
can donate twice a week for a maximum gross income of $60
per week. So from this source, a taxpayer might have as much
as $3120/year for income where I live.


To be very clear, Schedule C-EZ is also acceptable (assuming
the taxpayer meets the C-EZ requirements), correct?

Thank you also Harlan and Han for your input. Han, I would
be interested in knowing how your company pays clients for
their time and expenses. Check? Cash? Is there any
documentation (at your business and/or sent to the client)
for tax purposes?

The plasma center where I live pays cash and says they only
document how often an individual has blood withdrawn, so
they can ensure they are not risking their health.

Cash, receipts are sent to accounting at the college for the purpose of
getting petty cash. That's all I know. Since we collect blood cells,
donations are pretty limited (see Blood Center regulations for whole
blood), and so is the money, certainly per donor.

 

[removeps-groups]

Income is reportable regardless of documentation, and in this case,
the income would be reported on Schedule C of form 1040.  

Schedule C is for business income. I'm not sure if selling your own
blood for money qualifies as a business. Besides you get hit with the
self employment tax. I'd put it on form 1040, line for Other Income.

 

[pleasedontemailme]

Thank you for this analysis. A few questions:

I understand the minimum business income required for a
quarter of future SS coverage is $1000. Will the SSA credit
one quarter at a time? Your wording that only talks about
four quarters above is a little confusing to me.

If one meets the threshold for the year, one gets credit for all four
quarters.

To be very clear, Schedule C-EZ is also acceptable (assuming
the taxpayer meets the C-EZ requirements), correct?

Schedule C-EZ is also acceptable

 

[pleasedontemailme]

Schedule C is for business income. I'm not sure if selling your own
blood for money qualifies as a business. Besides you get hit with the
self employment tax. I'd put it on form 1040, line for Other Income.

The reason I suggested schedule C (or C-EZ) is only because I have
seen taxpayers report this income for the purpose of earning Social
Security credit. One does not earn Social Security credit for other
income, only self-employment income or wages.

The taxpayers I have seen using this approach are ... I don't know
quite how to put this without seeming callous or insensitive so I'll
just dive in... pretty marginal members of society who seem unlikely
to reach 40 quarters of wage-earning employment. In these instances,
reporting the sale of plasma or cans or whatever is a calculated
approach with a specific goal. Generally, there is a more-coherent
ring-leader showing up at the VITA site with a gaggle of less-coherent
(sometimes drunk or otherwise impaired, sometimes just beat down by
life) friends all reporting the same $1000 (or whatever the threshold
is for that year) in income for the year.

Regardless of the requirement to report all income from whatever
source derived, whether or not one receives a reporting document, I
generally do not see the more middle-of-the-road taxpayers going to
the effort of reporting this type of low-dollar, infrequent cash
income.

-Crystal

 

[Harlan Lunsford]

Schedule C is for business income. I'm not sure if selling your own
blood for money qualifies as a business. Besides you get hit with the
self employment tax. I'd put it on form 1040, line for Other Income.

The defining test is whether or not it is a regular activity. If one
routinely sells his blood as often as the plasma center allows, month
after month, year after year, then it is business income.

(Sure can't call this a hobby item. lol)

ChEAr$,
Harlan Lunsford, EA n LA

 

[Elle]

The defining test is whether or not it is a regular
activity. If one
routinely sells his blood as often as the plasma center
allows, month after month, year after year, then it is
business income.

I see the instructions for Schedule C say:
"An activity qualifies as a business if your primary purpose
for engaging in the activity is for income or profit and you
are involved in the activity with continuity and regularity.
For example, a sporadic activity or a hobby does not qualify
as a business."

So it seems to me that someone reporting less than say six
visits a year to sell their time to give blood plasma
qualify as only being "sporadic" in this activity. Unless
maybe they did this 6x a year, year after year, maybe for
their little "Christmas present fund" or something similar.

Such "sporadic" income thus goes on the "Other Income" line
(in 2007, line 21 of Form 1040). This does not count as
"Earned Income" for the purposes of the EIC. Nor can a
person get Social Security etc. credit.

Should someone eligible for the EIC wish to claim the income
from blood plasma sales as business income, then ISTM that
close questioning is in order. Generally speaking, those low
income folks taking the EIC are more likely to be audited
than those who do not. Anyone wanting blood plasma sale
income to be counted as "business income" must be able to
convince an IRS auditor that the activity was continuous and
regular, or at least "not sporadic."

To me, two questions remain:

1.
Is it such a stretch to say a person is self-employed such
that his/her business is to sell her body's abilities in any
way s/he can to support his/her family? Whence yard work,
cleaning homes, selling blood plasma donation time, singing
on the street with hat out, running messages, etc., in short
one is continuously and regularly selling any menial service
they can to make ends meet? If one can prove this is what
they do "regularly and continuously," then I think it would
have a good chance of withstanding any IRS challenge. The
point of EIC is to get people to earn their income, after
all. Is this not what someone scrambling to do menial work
attempting.

2.
That monies from these blood plasma centers is not reported
on a 1099-Misc (AFAIK) is a question I would like answered.

Please be aware that I have indeed seen a case where an
individual has $2000 of W-2 income and also, this blood
plasma income. It is no stretch in my mind to imagine her
scrambling weekly to find any meager wages from whatever
menial task her body and limited education permit.

Thank you all for clarifying the issues here.

 

[Stuart Bronstein]

I see the instructions for Schedule C say:
"An activity qualifies as a business if your primary purpose
for engaging in the activity is for income or profit and you
are involved in the activity with continuity and regularity.
For example, a sporadic activity or a hobby does not qualify
as a business."

So it seems to me that someone reporting less than say six
visits a year to sell their time to give blood plasma
qualify as only being "sporadic" in this activity. Unless
maybe they did this 6x a year, year after year, maybe for
their little "Christmas present fund" or something similar.

Continuous and regular does not have to mean frequent. If six times a
year is all that you are allowed to do, I don't see that as being
sporadic. Would you say that someone who sells Christmas trees isn't
in business until he's done it for several years in a row, even though
that is his intention from the beginning? I seriously doubt that would
be the case.

In fact, I know of retailers who break even (if that) during the rest
of the year and make all their profit during the Christmas season.
Would you say that they are engaging in hobbies until they've shown
that they have been in business for several years?

For a somewhat interesting case, see Green v. Commissioner, 74 T.C.
1229 (1980). There the taxpayer sold her plasma on the average of 15
times per year, and that was held to qualify for Schedule C treatment.

The more interesting argument was that income from the sale of blood
products is non-taxable as analogous to payment for personal injuries.
The court turned that claim down.

Stu

 

[Elle]

Continuous and regular does not have to mean frequent. If
six times a
year is all that you are allowed to do, I don't see that
as being
sporadic.

See my second post. Folks are allowed to sell blood plasma a
maximum of two times a week.

I was trying to identify a line where the IRS might rule
this self-employment income was not sporadic. I'd feel good
(for reporting as business income purposes) about someone
who had sold plasma at least, say, 12 times over the year.
The lesser it was, though, ISTM the more sporadic. The more
gray it becomes. If donations for money were infrequent, I
would either want to know that the taxpayer either was doing
this year after year, or I'd like to see if s/he perhaps was
performing "menial labor" (doing whatever s/he could with
menial labor to make a living) continually and regularly and
so qualifying as a business.

Don't get me wrong. I think most would agree folks who eke
out a living using their bodies are "earning income." So
they are ISTM meeting the intent of the EIC law. Being
persuasive on the EIC and Schedule C (or C-EZ or SE) issues
for tax return purposes is another issue.

For a somewhat interesting case, see Green v.
Commissioner, 74 T.C.
1229 (1980).

Yup. I cited this case in my original post. Both the Green
case and the Garber case involved income on the order of
$100,000 and up, due to their both having rare blood. That's
c. 1980 dollars.

 

[removeps-groups]

Don't get me wrong. I think most would agree folks who eke
out a living using their bodies are "earning income." So
they are ISTM meeting the intent of the EIC law. Being
persuasive on the EIC and Schedule C (or C-EZ or SE) issues
for tax return purposes is another issue.

If you report the income on Schedule C, you have to pay SE tax (which
I'm sure the government does not mind), but you can also take
deductions. I think if you were too creative with your deductions,
then the IRS might object. You could for example deuduct the cost of
mileage to get to and from the blood center. But deducting food and
drinks (I guess your body needs those to manufacture blood) as an
expense or cost of goods sold sounds a bit fishy; but then what if you
ate some herbs to help replenish the blood quickly so that you could
sell your blood more frequently and you wouldn't have taken this herb
otherwise, then would the cost of this herb be deductible.

 

[Seth]

If you report the income on Schedule C, you have to pay SE tax (which
I'm sure the government does not mind), but you can also take
deductions. I think if you were too creative with your deductions,
then the IRS might object. You could for example deuduct the cost of
mileage to get to and from the blood center.

Why wouldn't that be commuting, non-deductible?

But deducting food and
drinks (I guess your body needs those to manufacture blood) as an
expense or cost of goods sold sounds a bit fishy; but then what if you
ate some herbs to help replenish the blood quickly so that you could
sell your blood more frequently and you wouldn't have taken this herb
otherwise, then would the cost of this herb be deductible.

But they don't let you donate more often even if you take magic herbs,
so I still don't think it would be deductible.

Seth

 

[Harlan Lunsford]

If you report the income on Schedule C, you have to pay SE tax (which
I'm sure the government does not mind), but you can also take
deductions. I think if you were too creative with your deductions,
then the IRS might object. You could for example deuduct the cost of
mileage to get to and from the blood center. But deducting food and

(balance snipped....)

mileage? no way. (that would be too creative!) The blood bank/plasma
center is primary place of
activity.

ChEAr$,
Harlan Lunsford, EA n LA

 

[Stuart Bronstein]

(balance snipped....)

mileage? no way. (that would be too creative!) The blood
bank/plasma center is primary place of activity.

You don't think he could claim a home office? I'd argue that the
primary place of activity is where he ate his meals and replenished his
plasma. The blood bank is just where it was delivered.

Stu

 

[Harlan Lunsford]

You don't think he could claim a home office? I'd argue that the
primary place of activity is where he ate his meals and replenished his
plasma. The blood bank is just where it was delivered.

Stu

LOL!!! quite a chuckle there, Stu.

ChEAr$,
Harlan

 

[Elle]

Why wouldn't that be commuting, non-deductible?

From my study of Fig B and verbage in Pub. 463, I think it

would depend. In particular, the blood plasma center may not
be a "regular or main job." I would welcome the citation
from any person who feels otherwise.

If transportation expenses are not deductible, then for
certain low income folks the fact that their business income
may be higher will translate to a higher EIT credit.

Stuart, from my reading, I remain highly doubtful that one
needs to alter their diet significantly, if at all, even if
one donates plasma frequently. So I would not be looking to
count food as a business expense for donating plasma.