Taxes on fundraiser money?

Question

My friends and I are going to hold a fundraiser at a local restuarant to raise money for two friends of ours who have had a string of bad luck since getting married last year. The short and sweet of it:

- Pregnant
- Hyperemesis (severe morning sickness leading to dehydration and 4 hospital stays)
- Husband has to work 3 hours away; only money coming in right now due to doctor mandated bedrest.
- Maxed out insurance last year & this year.
- Child isn't even born yet & will be taken early most likely

My question is about the money that we raise and collect:

Will my friends be required to report the "gift" on their taxes or is the money free and clear since it is donated to them?

If anyone has a website link you can post that would validate the answer to question, please be sure to include it.

Thank you!

Answer 1

The money that she receives from the fundraiser will be considered a gift to her. It will not be taxable to her unless she was to invest the money ( put into savings acct) and it earned interest, then the interest would be taxable

From Publication 525 on gifts
Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

http://www.irs.gov/publications/p525/ar02.html#d0e8493

Answer 2

The fundraiser money would be considered to be gifts to them, and would not need to be reported. No taxes would be due on these amounts.