Gift Tax Endrunaround

The recipient can do whatever he wants. Your question is really whether such an action will pass an audit. The IRS might decide that the timing of the gifts indicates no bona fide gift was really made to the intermediary. If you desire to give such a sum to one person, there are better ways to do it, including tapping your lifetime gift exclusion.

Is this called substance over form or something like that?

You could call it that. Or the collapsible transaction doctrine. Or the IRS's statutory right to recharacterize a transaction to reflect economic reality.

Also, the phrase "Step Transaction Doctrine." A number of requirements for it to apply, but basically it appears too obvious the middle transactions weren't real, only part of two or three that had one end goal.

Do you see the same problem giving 14k to the husband and 14k to the wife so together they can buy a house? (Consistent with the wishes of the donor.)

Mic

In essence, no

There are two gifts, one given to each of two people. There is no problem with that.

If the donors do not live in a community property state, and money comes from a joint account, they may have to file a gift tax return (though incur no gift tax), depending on who actually earned the money.

The donor is a single person in California. Would that require a return - I think not - and especially since California is a community property state (as far as I know)? Mic

I guess I'm a little confused and may not understand exactly what your situation is.

At this point it sounds like you want to make a gift of $28,000 to two people. You should probably give them two checks of $14,000 each. That is no problem. If your situation is something else, please explain it more clearly.

The community property issue only comes up when two married people (to each other) are making a gift large enough that both want to use their annual exclusions.

Sorry it is unclear. It is one person giving 14k to a man and 14k to the wife. This is to help the married to each other man and wife buy a home with the sum total of 28k. Thanks for all the help here.

Mic

PS. I have also never been able to understand the difference between extortion and doing ordinary business - with all the shades of gray in our laws. That is a different thread.