Take donations as payment for software license keys

I was wondering if it is legal to offer a free software with limitations, then offer to give different license keys for donations.

In this case, it is a software for file uploads to different one-click-hosters. As free user, you can upload XX GB, then your speed and number of simultaneous uploads will be limited. If you donate more than 3$, you get a license key and become a registered user. Then you can upload 50GB a day (on average, you can exceed it, if you don't do it often). If you exceed this limit too much/often your license key will be disabled and you will be asked (via email) to "donate" 5$ a month to increase your traffic by 200GB a day.

Is this legal? Can you accept donations as a form of payment?
Donations are done via paypal.

I'd would be pretty concerned as this seems more so like a payment rather than a donation.

Donations are a "gift", something given without the expectation of receiving.

My assumption on why you would want to list this form of "payment" as a donation is just to get the lower rate that paypal will take out of the financial transactions.

I don't see how you could legally/ethnically say they are donations in the scenario you described. You would either have to take off the "limits" of the free version of software (therefore making it the same as a licensed one) or offer license keys for payment (not donations).

It's unclear which part do you think is not legal.

You can ask people for money in exchange for software or service.

Don't call it a donation, however. That won't fool anyone, especially the IRS. It's a payment.

Furthermore, if the reason you insist on calling a payment a donation is to avoid paying taxes on that income, then be advised that you have to pay taxes on donations as well.

This topic appears to be a sensitive one..

I'm changing my previous answer to one that applies to IRS as the comment below indicates - That means the assumption is that you're in the United States of America.

I have no idea how it works there - but in Asia and some other nations, it is going to come down to how you will put it in print. If it's "payment" - then it's payment. If it's a donation, then it's a donation. Still, there is an applicable tax for donations.

So if you're in the United States of America - and want to get this straightened out, check your local state attorneys.

If you're elsewhere, you may as well do the same, as there may be gray lines in non-U.S. nations.

My sincere apologies for the original misleading post.