Is this legal? (Avoiding gift tax.)

Well, they don't have to "prove" it. You (or the Donor actually) may have to prove that it was NOT the case. In another EMail you said "couldn't afford it [the gift]". I'll point out that at this amount, no one PAYS a gift tax. It reduces the future exclusion amount of the estate. Does that help?

Reply to
BeanTownSteve
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Stuart Bronstein wrote: ...

Not by those letters, anyway...

I don't doubt it's possible, simply commenting it seems rather unlikely for these kinds of numbers. Obviously, the simple, fully correct answer is to either spread it out over multiple years or file the appropriate gift tax form; I wasn't intending to imply otherwise.

It was intended solely as a joke albeit one probably needs more than a passing acquaintanceship w/ modern physics to get the connection... :)

Reply to
dpb

Say what? You're going to write me a check for $12K and you really expect me to give the proceeds to my brother? Wow!

There is no "gift tax". It's just a decrease in the amount to excluded from your estate when you die. Possibly the estate tax will go away. Possibly the unified credit will decrease. Never expect tax law to remain constant.

If it were to be a one-time transaction, it's unlikely there would criminal charges.

It only seems that way because it is.

Am I glad you asked that question! The beauty of the Internal Revenue Code is that the IRS does not have to prove anything unless it is a criminal case. They just disallow, recalculate, and send you a tax bill! If you disagree, you have to prove it.

Sorry, but innocent until proven guilty only applies to criminal cases. Every classification, deduction, exemption, etc. in the tax code is by the grace of Congress and you are required to prove that you are entitled to them.

Dick

Reply to
Dick Adams

Who's lying?

Situation A: Joe wants to buy a car, but he's $12K short. He tells his grandfather that he needs $12K for this, who gives him the money as a gift. He buys the car.

Situation B: Joe wants to give $12K to his brother, but he doesn't have it. He tells his grandfather that he needs $12K for this, who gives him the money as a gift. He gives the money to his brother.

It's certainly understandable that the giver can't attach strings to the gift, as that would clearly be a way for the giver to get around the gift limit. But if the receiver WANTS the gift for a specific purpose, should that really limit the giver?

What if Joe doesn't tell Grandpa what he wants the money for?

Reply to
Barry Margolin

Ok, then let me be more blunt. Cheating on your taxes is WRONG. No tax professional with a hint of integrity will suggest to a client that it's ok to lie, cheat and steal simply because the chances of getting away with it are high. Therefore, as far as I'm concerned, discussions about the liklihood of being caught when cheating on a tax return are as irrelevant as discussing the liklihood of being caught when robbing a liquor store.

Call me a product of my environment but I've gone toe-to-toe with one (in my opinion) dishonest tax professional too many who has a well established habit of suggesting/hinting/implying to people that it's ok to cheat if you're sure you won't get caught (after telling them the liklihood of their particular tax evading idea being detected by the IRS).

Reply to
Bill Brown

So if you change the facts so there isn't a conspiracy to evade taxes then you don't have a conspiracy to evade taxes.

What if I, instead of pulling a gun and robbing a bank, I borrow money from that bank after completing a complete, accurate loan application?

Reply to
Bill Brown

But good tax professionals will often take what they consider positions for which there is reasonable legal justification, even if that is not in agreement with the IRS position. Even the IRS does that, for example when they lose in court but decide to "nonacquiesce" to the court order.

That being said, they really have to have a reasonable justification after sufficient research. In this case a lawyer saying something off of his head is not sufficient, because he clearly has not read the consistent line of cases that deal with this issue. I've seen lawyers convicted of tax fraud for doing that kind of thing.

Stu

Reply to
Stuart Bronstein

I wonder if there are any court cases or IRS letter rulings that help to clarify similar situations, by giving some example(s) of what sort of gift sequences were not folded back into a single transaction.

Reply to
inky dink

But from the IRS's viewpoint on financial transactions, those look exactly the same: Grandpa gives Joe $12K, and Joe gives it to his brother.

It's easy for an auditor to see the difference.

Seth

Reply to
Seth

The child has a gift in the amount of the interest debt cancelled. The parent has interest income either way. (They got the interest, and might have given it back to their child as a gift.)

Seth

Reply to
Seth

Getting away from the OP, where everyone knew what was going on, I can see a scenario where it is not apparent at all.

Suppose grandfather, having some extra money, decided, without any other motive at all, to give his adult daughter $24K (married couple - joint gift) , and three grandchildren $12K each.

So far, no problem, happens every day, and shouldn't raise anyones suspicions.

Now the daughter thinks: "If I only had $60K I could start my own business", and knowing that her father had given her three children $12K each, she asks the kids to help out and give her the money and we will all be better off in the end -- but DON'T tell grandpa you gave me the money -- he might not like it.

Later comes the IRS auditor who sees $48K of grandfathers money ends up in daughters hands.

What happens? Can third party(s) (daughter and grandchildren) through their own, independent actions, make the giver, (who only wanted to make

4 separate gifts that would NOT be subject to gift tax), suddenly subject to the very gift tax he sought to avoid?

It seems to me, that even if the grandfather anticipated such an outcome, he couldn't make his gift(s) conditional on the grandchildren not re-gifting, as that would itself attach strings to the gift(s) that HE gave. However, in my scenario, the grandfather was entirely innocent of any wrong doing and had no way to anticipate the re-gifting.

Reply to
Ernie Klein

"Conditional gifts" aren't gifts, they're compensation for desired behavior.

Reply to
Bill Brown

You missed my point. I said the gifts were NOT conditional and the grandfather didn't know (and still doesn't know) that his gifts to the grand children were re-gifted to the daughter, but the result would be the same.

I don't see how an IRS audit could tell the difference between the conspiracy as suggested by the OP (where the grandfather wanted to launder money through the grandchildren to the daughter -- not allowed) and the situation where he gave 4 gifts and the grandchildren on their own decided to give the money to their mother, without the grandfather even knowing about it.

Following the money, the two situations look the same to an outsider, but in the first the grandfather would be required to file a gift tax return and if he didn't he would probably owe penalties, etc.; in the second the grandfather gave 4 separate and unconnected gifts without any conditions which do not require any filing.

If called on it by the IRS, the grandfather could not defend himself and could only say "Huh?", because he had/has no idea what happened to the money after he gave it.

Which brings back my question: Can third parties, on their own, without any knowledge of the original gift giver, change the nature of his gift from non-taxable to taxable through their own actions of re-gifting the money?

Reply to
Ernie Klein

I haven't seen a case like that brought. If it were, it could go either way. The courts don't seem to look at intent - just initial cause and ultimate intent.

The answer is that they don't need to. It's up to the taxpayer to prove that the transaction was exempt, not the other way around. And that's difficult to do when the money is traced.

I wouldn't be surprised if a court upheld a requirement to file a gift tax return in the second case, either. Though the fact that I wasn't able to find a case like that indicates that the IRS may be erring on the side of caution.

Under some circumstances I am sure that could conceivably happen, yes.

Stu

Reply to
Stuart Bronstein

Basically it seems to come down to the fact that the IRS doesn't believe in big coincidences. If all the money somehow ends up in on person's account, it strains credibility.

The counter-example someone else posted, where grandpa gives to his children and granchildren, and his children also give to their children (his grandchildren), might be the only exception. All the individual gifts are normal occurrences, so the "coincidence" is practically inevitable.

Reply to
Barry Margolin

One cannot prove a negative. The grandfather can only prove the true facts, which are: He gave 4 gifts.

So, you are saying, that even though a gift giver cannot place any conditions on a gift when it is given, and cannot have any control over the gift after it is given, he can still be held responsible, (and penalized), for actions the recipient of the gift might take with the gift after the fact.

That seems to be a paradox, in as the only way a gift giver could protect himself from having the nature of his gift changed after the fact would be to place his own conditions on the use of the gift, but such conditions would themselves change the nature of the gift and would not be allowed.

Reply to
Ernie Klein

If he gives the max to 4 people, and three of them all give the max to the fourth, what's the chance that there was no collusion?

The IRS isn't held to a "beyond a reasonable doubt" standard, like criminal prosecution. If it walks like a duck and quacks like a duck, it's a duck.

Reply to
Barry Margolin

I am not a gambler so I don't know the odds.

In the scenario I purposed, there was no collusion, in fact the giver was totally unaware of the redistribution of his gifts.

Having been both on the receiving end of gifts (from my Aunt and Mother when they were alive), and on the giving end to my two daughters and 4 grand children. I think I can safely say that gift money sometimes is pooled within families to purchase large items (like an RV -- maybe more often than you think), however I don't think that anyone has done anything improper at all when the receivers of the gifts do that, and the gift giver had no intention or knowledge of the final outcome.

Others has said that intention plays no part, but intention seems to be the only thing that makes an otherwise innocent person, guilty.

Unless it is an innocent turkey that has been mistaken for a duck and has no way to prove that he is really a turkey.

Reply to
Ernie Klein

Barry Margolin wrote in news: snipped-for-privacy@comcast.dca.giganews.com:

Well, Barry, if it involves 10 or more K several times over, one should think of the IRS.

Reply to
Han

It's not a question of guilt or innnocence. It's a question of whether a gift tax is imposed or not. And the courts have held that the tax is imposed if one person makes gifts in excess of the annual exclusion, and another person ends up receiving those gifts.

Is the failure to file a gift tax return in this case tax fraud? No. But that doesn't mean the tax won't be imposed.

Stu

Reply to
Stuart Bronstein

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