Gift tax--who pays?

[Shagnasty]

@Voyager

After he gives it to them, it is theirs to do with as they wish. I don’t see how this could be prevented. I suspect that any sort of contractual obligation forcing them to transmit the money to the granddaughter would make it no longer, a gift, right?

Some people have other “influences” than those provided by contracts. Let’s just say it was a powerful person and everyone that first got the money knew that nothing was absolutley forced but the general intent made itself known and it probably wouldn’t be a good idea not to follow through.

[CaveMike]

@Shagnasty

Some people have other “influences” than those provided by contracts. Let’s just say it was a powerful person and everyone that first got the money knew that nothing was absolutley forced but the general intent made itself known and it probably wouldn’t be a good idea not to follow through.

We’re on the same wavelength Shagnasty, I was leading to that question too.

Even if a few people refused to pass on the money, you would still “save” money compared to the taxes. I am guessing there is some generic “intent to evade taxes” law that would trip you up.

[Random]

@CaveMike

We’re on the same wavelength Shagnasty, I was leading to that question too.

Even if a few people refused to pass on the money, you would still “save” money compared to the taxes. I am guessing there is some generic “intent to evade taxes” law that would trip you up.

I’m not a tax lawyer, but I do know that there is a concept called a “step transaction” under the tax law that essentially says that any multi-step scheme that would be illegal if done directly is still illegal, even if each separate step (when viewed in isolation) is legal.

[Gfactor]

Step transactions: http://www.pmstax.com/acqbasic/stepTran.shtml

http://www.findarticles.com/p/articles/mi_m6280/is_4_196/ai_108839664

http://www.vrmlaw.com/CM/Articles/Articles93.asp

http://www.vrmlaw.com/CM/Articles/Articles91.asp

[Campion]

@Gfactor

Probably not, but he’d have to file a Gift Tax return. He wouldn’t owe taxes unless he had used up his unified credit (currently $345,800, which permits lifetime gifts of $1M).

You’re right; I did not account for the unified credit. Ah, those tricky tax men!

[muttrox]

@Random

I’m not a tax lawyer, but I do know that there is a concept called a “step transaction” under the tax law that essentially says that any multi-step scheme that would be illegal if done directly is still illegal, even if each separate step (when viewed in isolation) is legal.

Is your use of the term “legal” correct? There’s nothing illegal about giving someone $50,000, it just means I have to pay some taxes, correct?

[Random]

@muttrox

Is your use of the term “legal” correct? There’s nothing illegal about giving someone $50,000, it just means I have to pay some taxes, correct?

Good point, in that the transactions usually aren’t inherently illegal.

In practice, though, the timeline is: 1) promoter of tax avoidance scheme get the idea; 2) structures one or more step transaction deals for himself and possibly others; 3) tax is not paid on incorrect theory that step transaction avoids it (several years of returns might be filed); 4) IRS gets wind of scheme; and 5) IRS takes enforcementaction, which often includes criminal prosecution.

The extra steps increase the (non tax) costs associated with the transaction. Accordingly, if you’re not avoiding taxes, you’re not going to needlessly complicate the deal in this manner. No one does these deals and voluntarily pays the taxes when they’re due. So, yes, I would say that the deals can be fairly said to be illegal in the overall sense.

Again, though, not my area. I’ll readily defer to someone with more knowledge.