salinalea
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Joined: 17 Feb 2009
Posts: 4
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# Posted: 19 Feb 2009 11:16
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I have been researching cash gifting for months trying to unravel the controversy that surround the legalities of this activity. Here is what I found.
First, let me tell you that giving a cash gift is 100% legal.
It is your constitutional right to gift property, cash and other assets to anyone you wish and is a privilege that can not be taken away.
In fact, in the United States we have the Preamble, the Constitution, and the Bill of Rights to protect a private citizen's right to earn, own and give away property and cash as long as it's done according to the laws and codes of this country. The U.S. Cash Gifting Rules are found in the IRS Gift Tax Code, Title 26, Sections 2501-2504 and 2511(Publication 950).
The law states that any individual can give a gift to another individual up to $12,000 each per calendar year without any tax liability to either the giver or receiver of the gift, because the tax on the gift has supposedly already been paid.
You can give a gift up to $12,000 each, to any number of people and none of it would be taxed. The same goes that you can receive a gift up to $12,000 each, from any number of people and none of it would be taxed.
The act of giving a cash gift is completely legal. This we know. It is when it becomes an activity or program as a way to generate an income that the question of legalities arise.
Most programs use the IRS Gift Tax Code as a way of claiming that their cash gifting program is legal. This is a common misconception.
The IRS only collects taxes and enforces the internal revenue laws. The IRS determines if the income generated from an activity is taxable and not if the activity is legal or illegal.
It is The Federal Trade Commission (FTC) and The State Attorney General that would determine if the structure of any gifting program is legal or illegal not the IRS.
The Federal Trade Commission is an independent agency of the United States government and its principal mission is the promotion of "consumer protection" and the elimination and prevention of what regulators perceive to be harmful business practices.
Even though the FTC does determine whether an activity is structured legally or illegally, they are not the source to go to for opinions or advice about the legitimacy of your gifting program. They do not employ enough people to provide this function.
Your State Attorney General is the chief legal advisor to the state government and the state's chief law enforcement officer. He or she is the source that would provide you with the information if your gifting program is operating in accordance with the law.
The main concern of legitimacy of any gifting program is whether or not the gifting program is structured legally or illegally and if it operates in a legal or illegal manner.
Cash gifting programs of the past were structured illegally and were in fact pyramid schemes. Their structure was multi-tiered with the people at the top being paid as new members were recruited while people at the bottom have to fight their way to the top to even make any money.
Most of the cash gifting programs of today are not pyramid schemes and are legal in structure. To operate in accordance with the law, gifting programs are linear in their structure called receiving lines. This means it operates strictly on a one-to-one level between the giver and the receiver. Person to person.
Also, properly structured gifting programs operating in accordance with the law will utilize proper documentation in the form of Gifting Statements/Letters and Non-Solicitation forms, which when signed and witnessed, are binding agreements between two or more individuals.
These are legal agreements between the giver and the receiver that state:
� The gift is a gift with no expectations.
� The giver was not solicited.
� The gift was not an investment of any type.
� The receiver made no promise or guarantee to the giver of a future earning income.
These forms are used to ensure the legitimacy and sustainability of the activity and should be filed and shared with the proper tax preparation people, CPAs and or accountants.
The other questionable aspect to cash gifting is "should you declare the gifts that you've received as taxable income?"
Even though the tax law states that cash gifts under $12,000 do not have to be included in the gross income, it may be a good idea to pay taxes on all the gifts you receive.
During my research I found an article that states: "Some of these 'gifting' organizations claim the money is tax-free, but the IRS considers all income derived from them to be reportable income."
Now, I am not a CPA or tax attorney and I am not giving any legal advice but there is such a thing call tax evasion. So, please consult an accountant on how to handle the cash generated through this activity.
Cash gifting programs are legal if they are structured properly and operate in a legal manner. Meaning:
� They operate on a one-to-one level between a giver and a receiver. Person to person.
� They do not operate in a multi-tiered or matrix structure that have "positions" or "spots".
� There is no fixed hierarchy of individuals who have an advantageous position over others.
� There is not a pyramid with an ever widening base due to recruiting that eventually collapses.
� They make no promises or guarantees of a future earning income.
� They use proper documentation agreements that state (1) the gift is a gift with no expectations, (2) the giver was not solicited, (3) the gift was not an investment of any type, and (4) the receiver made no guarantee to the giver of a future earning income.
Cash gifting programs are illegal if they are structured improperly and they operate in an illegal manner. Meaning:
� They do not operate on a one-to-one level between a giver and a receiver. Person to person.
� They operate in a multi-tiered or matrix structure that have "positions" or "spots".
� There is a fixed hierarchy of individuals who have an advantageous position over others.
� There is a pyramid structure with an ever widening base where the people at the top make all the money and those at the bottom have no chance of making it to the top.
� They make promises or guarantees of a future earning income.
� They do not use proper documentation agreements that state (1) the gift is a gift with no expectations, (2) the giver was not solicited, (3) the gift was not an investment of any type, and (4) the receiver made no guarantee to the giver of a future earning income.
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