Is this legal? (Avoiding gift tax.)

curiousgeorge408 · Joined: 27 Dec 2007 Posts: 11

Suppose a single parent wants to give $60K to an adult
daughter (not a dependent). Normally, today, that would
mean that $48K is subject to gift tax (less unified credit,
ya-da-ya-da).

But suppose that instead, the parent gives $10K to each
of 4 adult grandchildren and to another adult child, then
each person decides to give $10k each to the daughter.

Ostensibly, none of the $60K is subject to gift tax because
each person's gift is below their annual exclusion amount.

Is that legal?

It seems like "laundering". But how could the IRS prove
it?

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Archived from group: misc>taxes>moderated

Stuart Bronstein · Joined: 25 Aug 2007 Posts: 561

curiousgeorge408@hotmail.com wrote:

> Suppose a single parent wants to give $60K to an adult
> daughter (not a dependent). Normally, today, that would
> mean that $48K is subject to gift tax (less unified credit,
> ya-da-ya-da).
>
> But suppose that instead, the parent gives $10K to each
> of 4 adult grandchildren and to another adult child, then
> each person decides to give $10k each to the daughter.
>
> Ostensibly, none of the $60K is subject to gift tax because
> each person's gift is below their annual exclusion amount.
>
> Is that legal?

It's certainly legal. However it will not achieve your goal, since the
IRS will collapse the transaction and treat it as a single gift from
parent to child of $60,000.

Stu

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Bill Brown · Joined: 25 Aug 2007 Posts: 104

On Feb 26, 11:18 am, Stuart Bronstein wrote:
> curiousgeorge...@hotmail.com wrote:
> > Suppose a single parent wants to give $60K to an adult
> > daughter (not a dependent). Normally, today, that would
> > mean that $48K is subject to gift tax (less unified credit,
> > ya-da-ya-da).
>
> > But suppose that instead, the parent gives $10K to each
> > of 4 adult grandchildren and to another adult child, then
> > each person decides to give $10k each to the daughter.
>
> > Ostensibly, none of the $60K is subject to gift tax because
> > each person's gift is below their annual exclusion amount.
>
> > Is that legal?
>
> It's certainly legal. However it will not achieve your goal, since the
> IRS will collapse the transaction and treat it as a single gift from
> parent to child of $60,000.
>

I disagree. The OP describes an illegal conspiracy to engage in tax
fraud. If the IRS notices and gift tax is due from the lead
conspiritor, it will surely assess civil fraud penalties on top of the
gift tax.

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Ernie Klein · Joined: 25 Aug 2007 Posts: 176

In article
,
curiousgeorge408@hotmail.com wrote:

> Suppose a single parent wants to give $60K to an adult
> daughter (not a dependent). Normally, today, that would
> mean that $48K is subject to gift tax (less unified credit,
> ya-da-ya-da).
>
> But suppose that instead, the parent gives $10K to each
> of 4 adult grandchildren and to another adult child, then
> each person decides to give $10k each to the daughter.

Yes, it is legal so long as each grandchild decides on their own,
without any help or prodding or even a suggestion from you to make such
a gift.

Remember to be a gift, there can be no conditions or strings attached.
Once the gift if given to the grandchildren it is theirs to do anything
they want - spend it all on themselves, save it, or give it away as
they see fit, without any help from you.

If you, in any way, suggest that they should pass the money on to
another person, then it is not a gift and cannot be treated as if it
were.

--
-Ernie-

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Stuart Bronstein · Joined: 25 Aug 2007 Posts: 561

Bill Brown wrote:
> Stuart Bronstein wrote:
>> curiousgeorge...@hotmail.com wrote:

>> > But suppose that instead, the parent gives $10K to each
>> > of 4 adult grandchildren and to another adult child, then
>> > each person decides to give $10k each to the daughter.
>>
>> > Ostensibly, none of the $60K is subject to gift tax because
>> > each person's gift is below their annual exclusion amount.
>>
>> > Is that legal?
>>
>> It's certainly legal. However it will not achieve your goal,
>> since the IRS will collapse the transaction and treat it as a
>> single gift from parent to child of $60,000.
>
> I disagree. The OP describes an illegal conspiracy to engage in
> tax fraud. If the IRS notices and gift tax is due from the lead
> conspiritor, it will surely assess civil fraud penalties on top of
> the gift tax.

It's only tax fraud if he actually attemps to get five annual
exclusions for a single gift. The act of making four gifts with the
expectation that they will be given to a fifth person, in itself, is
not illegal.

Stu

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Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

wrote
> Suppose a single parent wants to give $60K to an adult
> daughter (not a dependent). Normally, today, that would
> mean that $48K is subject to gift tax (less unified credit,
> ya-da-ya-da).
>
> But suppose that instead, the parent gives $10K to each
> of 4 adult grandchildren and to another adult child, then
> each person decides to give $10k each to the daughter.
>
> Ostensibly, none of the $60K is subject to gift tax because
> each person's gift is below their annual exclusion amount.
>
> Is that legal?
>
> It seems like "laundering". But how could the IRS prove
> it?

It's been caught in audits before, and the courts say it's just what it
looks like. Failure to file penalties pile up.

Just file the gift tax return and be done with it.

--
Paul A. Thomas, CPA
Athens, Georgia

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Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"Stuart Bronstein" wrote
> with the expectation

And that is what the courts have said makes it ~~one~~ transaction. A gift
tax return is due.

"illegal"?? They won't cuff you if that's what you think.

--
Paul A. Thomas, CPA
Athens, Georgia

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dpb · Joined: 25 Aug 2007 Posts: 47

Ernie Klein wrote:
> In article
> ,
> curiousgeorge408@hotmail.com wrote:
>
>> Suppose a single parent wants to give $60K to an adult
....
>> But suppose that instead, the parent gives $10K to each
>> of 4 adult grandchildren and to another adult child, then
>> each person decides to give $10k each to the daughter.
>
> Yes, it is legal so long as each grandchild decides on their own,
> without any help or prodding or even a suggestion from you to make such
> a gift.
....

And, of course, w/ the $12K current annual limit, one person could be
removed from the scenario...

It does have to be a "no strings" gift, however, w/ no threat (actual or
implied) of penalty current or future if the recipient were to somehow
not to get the (of course undelivered Smile

) message...

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curiousgeorge408 · Joined: 27 Dec 2007 Posts: 11

On Feb 26, 9:09 am, Ernie Klein wrote:
> Yes, it is legal so long as each grandchild decides on their own,
> without any help or prodding or even a suggestion from you to
> make such a gift.
> [....]
> If you, in any way, suggest that they should pass the money on to
> another person, then it is not a gift and cannot be treated as if it
> were.

I understand what you are saying; and it makes sense.
But in practical terms, I cannot imagine how the IRS can
enforce that. They can see the flow of funds; but they cannot
prove collusion unless one of the (intermediate) recipients
says something.

Besides, if the situation begins with all gifting parties wanting
to give money to the recipient, but they cannot afford it, so they
hatch this scheme, there is no prodding. Everyone is freely
giving money to one person. What enables them to afford it
is that the parent gives them "some extra money to do with as
you please". (But they discussed ahead of time how they wanted
to use the money.)

FYI, the reason I bring this up is: this was actually suggested
by the parent's estate attorney. It sounded suspicious to me,
too.

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Stuart Bronstein · Joined: 25 Aug 2007 Posts: 561

curiousgeorge408@hotmail.com wrote:
> Ernie Klein wrote:

>> Yes, it is legal so long as each grandchild decides on their own,
>> without any help or prodding or even a suggestion from you to
>> make such a gift.
>> [....]
>> If you, in any way, suggest that they should pass the money on to
>> another person, then it is not a gift and cannot be treated as if
it
>> were.
>
> I understand what you are saying; and it makes sense.
> But in practical terms, I cannot imagine how the IRS can
> enforce that. They can see the flow of funds; but they cannot
> prove collusion unless one of the (intermediate) recipients
> says something.

The IRS doesn't have to prove collusion or even motivation. All they
have to do is to show what actually happened. The courts have said
that what matters is not what anyone's motivation is, but the final
result.

> Besides, if the situation begins with all gifting parties wanting
> to give money to the recipient, but they cannot afford it, so they
> hatch this scheme, there is no prodding. Everyone is freely
> giving money to one person. What enables them to afford it
> is that the parent gives them "some extra money to do with as
> you please". (But they discussed ahead of time how they wanted
> to use the money.)

Good in theory, doesn't work in practice.

> FYI, the reason I bring this up is: this was actually suggested
> by the parent's estate attorney. It sounded suspicious to me,
> too.

It's not a bad idea. The lawyer apparently doesn't know what courts
have done with this issue in the past.

Stu

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Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

wrote
> so they hatch this scheme,

I suspect your professional liability insurance carrier wouldn't like you
being in the hatchery business.

> there is no prodding.

When something has to be hatched there is.

> Everyone is freely giving money to one person.

It's not freely given if a scheme had to be hatched.

What enables them to afford it
> is that the parent gives them "some extra money to do with as
> you please". (But they discussed ahead of time how they wanted
> to use the money.)

Then it's a plan, which can be folded back up into what it's intent was -
for one person to gift above and beyond the limit to another person.

Now, if the transactions happened years apart, or gifts were made to some
children who didn't give to the intended child, etc......you've got a
defendable position.

--
Paul A. Thomas, CPA
Athens, Georgia

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PeterL · Joined: 25 Aug 2007 Posts: 23

On Feb 26, 10:47 am, curiousgeorge...@hotmail.com wrote:
> On Feb 26, 9:09 am, Ernie Klein wrote:
>
> > Yes, it is legal so long as each grandchild decides on their own,
> > without any help or prodding or even a suggestion from you to
> > make such a gift.
> > [....]
> > If you, in any way, suggest that they should pass the money on to
> > another person, then it is not a gift and cannot be treated as if it
> > were.
>
> I understand what you are saying; and it makes sense.
> But in practical terms, I cannot imagine how the IRS can
> enforce that. They can see the flow of funds; but they cannot
> prove collusion unless one of the (intermediate) recipients
> says something.
>
> Besides, if the situation begins with all gifting parties wanting
> to give money to the recipient, but they cannot afford it, so they
> hatch this scheme, there is no prodding. Everyone is freely
> giving money to one person. What enables them to afford it
> is that the parent gives them "some extra money to do with as
> you please". (But they discussed ahead of time how they wanted
> to use the money.)
>
> FYI, the reason I bring this up is: this was actually suggested
> by the parent's estate attorney. It sounded suspicious to me,
> too.
>

So that's a great lesson to teach the grand children. Lying is the
way to get ahead in this world.

Nice.

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south office · Joined: 26 Feb 2008 Posts: 1

taxpayer wants to give the contents of his annuity to the church, can this
be done in a way that keeps it off his tax return as income?

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Bill Brown · Joined: 25 Aug 2007 Posts: 104

On Feb 26, 1:47 pm, curiousgeorge...@hotmail.com wrote:
> I understand what you are saying; and it makes sense.
> But in practical terms, I cannot imagine how the IRS can
> enforce that. They can see the flow of funds; but they cannot
> prove collusion unless one of the (intermediate) recipients
> says something.

Generally, the burden of proof in civil tax matters is on the tax
payer, not the IRS.

Only in criminal tax matters is the burden of proof on the government.

As for playing the audit lottery, no reputable tax professional will
advise that course of action.

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joetaxpayer · Joined: 25 Aug 2007 Posts: 280

curiousgeorge408@hotmail.com wrote:

> Suppose a single parent wants to give $60K to an adult
> daughter (not a dependent). Normally, today, that would
> mean that $48K is subject to gift tax (less unified credit,
> ya-da-ya-da).
>
> But suppose that instead, the parent gives $10K to each
> of 4 adult grandchildren and to another adult child, then
> each person decides to give $10k each to the daughter.
>
> Ostensibly, none of the $60K is subject to gift tax because
> each person's gift is below their annual exclusion amount.
>
> Is that legal?
>
> It seems like "laundering". But how could the IRS prove
> it?

Why not go with the 'unified credit, ya-da'? That has one form to fill
out and zero taxes due. Does the parent have a large estate? Any reason
that sum is needed right now? Parent can also lend the $48K, and each
year forgive the interest plus some principle. If this loan is recorded
properly, there's the risk that it goes back into the estate on he
parent's death. It will take the full time to complete the gift.
JOE
www.blog.joetaxpayer.com

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