In the wake of President Donald Trump’s recent policy changes, the Internal Revenue Service (IRS) faces a complex challenge in enforcing the new tax rules on tips. The policy, born out of a campaign pledge and materialized through recent tax legislation, aims to incentivize tip-based income by establishing a new deduction. However, it has placed the IRS in the precarious position of defining what constitutes a tip, identifying the workers eligible for the deduction, and drawing a line between general online content and pornography.
Implemented restrictions dictate that only those employed in occupations that "customarily and regularly" receive tips are eligible for the deduction. A wide array of professions, including "digital content creators," "entertainers and performers," and "dancers," were listed in the proposed regulation released this September, seemingly extending benefits to adult entertainment workers. Nonetheless, the Trump administration clarified that tips earned through prostitution or "pornographic activity" would not qualify for the tax break, leaving many in the adult entertainment industry, particularly those on platforms like OnlyFans, in a state of limbo.
OnlyFans, a content-sharing platform that allows users to provide tips, hosted over 4.6 million creator accounts and more than 377 million fan accounts in 2024, according to the parent company. The number of accounts based in the United States is yet to be determined. The ambiguity surrounding the definition of "pornographic activity" has sparked debate among tax professionals, with some expressing concern over how the ban will be enforced and questioning the practicality of such a distinction.
Katherine Studley, an accountant servicing numerous OnlyFans creators, highlighted the difficulty in differentiating content, noting the platform's diversity that includes non-sexual channels focused on cooking or yoga. This sentiment reflects the broader historical challenge of defining pornography. A notable instance is the 1964 Supreme Court ruling where Justice Potter Stewart famously stated, "I know it when I see it," underscoring the inherently subjective nature of such definitions.
The IRS's task of defining "pornographic activity" has potential implications for enforcement, requiring agents to review content from platforms like OnlyFans to determine if it qualifies as pornographic and is thus ineligible for the deduction, which has a cap of $25,000. The subjective judgment of IRS examiners or Tax Court judges would play a crucial role in this process, as tax preparer and educator Thomas Gorczynski remarked, delineating the fine line between clear-cut pornography and more subjective material.
The issue has also caught the attention of media personalities, with Ben Shapiro discussing the IRS's role in content review on OnlyFans with Greg Gutfeld, as highlighted by a tweet from the Daily Wire. The conversation delves into the surprising use of taxpayer-funded time by IRS agents to enforce tax code regulations related to the platform.
As the IRS navigates the intricacies of enforcing this new tax policy, the demand for clear guidelines grows. The outcome will not only affect the livelihoods of content creators but also set a precedent for how digital platforms and their users are taxed in the evolving gig economy.
