The reason this can’t be “above board” is that the tax law is concerned with economic realities, not with the “spin” the parties to a transaction could put on it.
A gift for tax purposes is defined as a transfer of property solely out of the goodness of one’s heart for no tangible benefit in return. In one famous case, the IRS denied a charitable contribution deductions to Scientology members because the “donatiions” the members paid to the church were actually fees for auditing services instead of gifts given out of the detached and disinterested generosity of the members.
Similarly, restaurant goers pay tips as compensation for services rendered and not simply out of the goodness of their hearts. Now, if you are a waiter and your mom comes into the restaurant and leaves you a $1,000 tip, you could probably characterize the amount of that tip in excess of 15-20% of the tab as a gift based on your relationship with the customer, but the same $1,000 from an unrelated customer that was trying to hit on you would be taxable income.
Feel free to flash the TaxGuy symbol in the sky if you need me again.
Well, TaxGuy, I knew of course that the answer was, “Because that’s the way the IRS wants it.” The same way they say if you gamble and lose, then that’s entertainment, so no deductions, but if you gamble and win, that’s income, so declare it (and then you can claim your losses). But I don’t have to think it’s right and I don’t have to like it.
So if I give a woman $1000 as a gift and then we start dating, it’s no longer a gift? What is it then, prostitution?
And if I give a waiter $100 tip on my check at the Chinese buffet where all he did was fill my drink, the $100 dollars is so far beyond any “tangible benefit” I might’ve received as to make it negligible. Still, the guy is going to get popped for 8% claimed or unclaimed, so what are you going to do?
The above is mostly rhetorical; no answers or solutions are required.
