Cash Gifting: Legal or Illegal?

Every single cash gifting program which attempts to pass cash gifting off as an opportunity to make money uses the exact same logic to try and explain its legality. Cash gifting administrators point to the language of the United States IRS Tax Code, Title 26, Sections 2501-2504 and 2511, which states that:

An individual may give as a "cash gift" up to $12,000 USD total, to as many individuals as that individual desires within a calendar year. While these gifts are non-taxable, and need not be reported to the IRS, there are conditions. In order to be deemed non-taxable, the cash gift must be given without the expectation of receiving anything in return."

However, as we discussed in the article entitled, "What is Cash Gifting", the IRS Tax Code, Title 26, Sections 2501-2504 and 2511 were not intended for how to make money cash gifting programs. Therefore, anyone who is involved in a cash gifting program, and attempts to avoid taxation under the guise of the aforementioned Tax Code, will most likely be subjecting themselves to tax evasion charges. Furthermore, these sections of the IRS Tax Code merely determine whether a specific form of income is taxable or non-taxable, not the legality of a business or activity structure.

The Structure of Cash Gifting

Cash gifting programs are generally formed for the purpose of recruiting other members who only gain membership after providing their cash gift, administrative fees, and paperwork to individuals already within the program. Most of these programs, if not all of them, offer absolutely no product, or service, and attempt to distinguish themselves from the illegal pyramid scheme with structural creativity.

 

Traditional Cash Gifting Clubs (Pyramid Schemes)

This cash gifting structure has been around for decades, if not an entire century, and has lead to the drafting of specific legislation in numerous countries (including the United States) to outlaw these sorts of clubs. Often referred to as pyramid schemes, due to their "infinite" geometric progression and impossibility of sustainability. It is based on a business model, which will knowingly eventually fail due to the fact that there are not enough people on the planet earth to sustain it. This form of cash gifting involves the transfer of money, primarily for recruiting other people into the pyramid, usually without a product or service being obtained in exchange.

 

 

1-UP Cash Gifting Structure

This was perhaps the most common online cash gifting structure early on before internet cash gifting administrators became really creative. In order to avoid the appearance of being an illegal pyramid, the 1-UP Cash Gifting Structure creates a beginning and an end (ie. receiving line) for every cash gifting transaction. The structure of 1-Up Cash Gifting is fairly straight forward. For example, "Cash Gifter 1" brings "Cash Gifter 2" into their respective program.  "Cash Gifter 2" now brings "Cash Gifter 3" into the program. However, "Cash Gifter 3" must send their "cash gift" to "Cash Gifter 1", as "Cash Gifter 2" must pass up their first gift to the person who brought them into the program, hence the term, "1-Up Cash Gifting." Thereafter, "Cash Gifter 2" is free to collect "cash gifts" from future recuits, as "Cash Gifter 1" is no longer in their receiving line.

*For more details on the different types of cash gifting programs, please see The Multiple Faces of Cash Gifting.

Nonetheless, we know of no black letter or case law to determine the legality or illegality of this structure. Perhaps this is due to its infancy. Regardless, it resembles too strongly past pyramid schemes which have ample black letter and case law to be deemed felonious in a myriad of states, as well as countries around the world.

While the final decision is up to you, we recommend that you proceed with caution for a couple of reasons. The first reason is due to the fact that internet cash gifting is in such a gray area right now, you do not want to end up being the first defendant in State v. Your Name. Furthermore, if you decide to take your chances with cash gifting, other people will be very apprehensive not only to send untraceable cash to an absolute stranger (you), but will also have concerns of ending up being the named defendant in State v. Their Name. Hence, we conclude that if you are searching for how to make money, that you avoid cash gifting.

Zero Cost. Zero Obligation.

SOSComplete!