Is this legal? (Avoiding gift tax.)

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?

Reply to
curiousgeorge408
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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

Reply to
Stuart Bronstein

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.

Reply to
Bill Brown

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.

Reply to
Ernie Klein

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

Reply to
Stuart Bronstein

wrote

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.

Reply to
Paul Thomas, CPA

"Stuart Bronstein" wrote

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.

Reply to
Paul Thomas, CPA

...

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 :) ) message...

Reply to
dpb

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.

Reply to
curiousgeorge408

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.

Good in theory, doesn't work in practice.

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

Stu

Reply to
Stuart Bronstein

wrote

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

When something has to be hatched there is.

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

What enables them to afford it

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.

Reply to
Paul Thomas, CPA

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

Nice.

Reply to
PeterL

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?

Reply to
south office

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.

Reply to
Bill Brown

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

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Reply to
joetaxpayer

Bill Brown wrote: ...

But where would there be even a hint of impropriety in any return that would trigger an audit? The gifts are each within the $12K limit so no reporting required and as gifts are not reportable as income by the recipients.

Note I'm not recommending this as a course of action necessarily, simply noticing that it doesn't seem there would be anything generated that would raise any question w/ the IRS or be required to be reported to do so.

Aside -- As a physics guy by training, I wonder if there's a "quantum connection" in the recipients learning of their "required" action on receipt that is otherwise intangible transfer of information... :)

Reply to
dpb

You can make suggestions, just not requirements.

Why not?

If I give you $5, and suggest you donate it to (a specific) charity, that's still a gift from me to you (and perhaps a charitable donation from you).

Seth

Reply to
Seth

Yes, that's the safest way if it won't cause a big increase in the parent's estate tax burden.

Yes, but there are a couple of warnings that go along with doing it that way. First is that if it looks like the loan/forgiveness was set up in advance, the IRS may still collapse the transaction. One approach would be for the child to send a check each year to the parent for that year's payment due, and have the parent forgive the payment on receipt of the check and not cash it.

The other thing to watch out for is that loans require interest. If there is none the IRS will impute it. In this case either the parent would have imputed interest in the amount that they should have received but didn't, or the child will have interest in the amount of the interest debt cancelled.

Stu

Reply to
Stuart Bronstein

The IRS has discovered this kind of thing in the past, so they could do it again. What might trigger them looking? Well, if the parent had, say, $3,000 less interest one year than the year before and the child $3,000 more, they might put two and two together. There may be other ways, too.

Apparently you've never heard of a TCMP audit.

Again, there is no need for the IRS to prove a conspiracy. All they have to do is show that one person made a gift and one person ended up with all the money. What happened in between is largely irrelevant.

Stu

Reply to
Stuart Bronstein

I meant suggestion in the same vane as the OP was asking i.e., Here is a gift from me to you -- I "suggest" (nudge, nudge , wink, wink) that you give it to your mother, with everyone involved knowing full well the reason for the gift to the child and not directly to the mother.

Reply to
Ernie Klein

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