How Do You Define Cash Gifting?

If you are reading or hearing of cash gifting for the first time, you are almost certainly wondering what exactly it involves, and how it can benefit you, if at all.

Nonetheless, the definition of the term "cash gifting" is highly dependant upon the context in which it is being used.

Cash Gifting in the Estate Planning Context

In the United States, under the IRS Tax Code, Title 26, Sections 2501-2504 and 2511, 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.

In the estate planning context, "cash gifting" is very easy to define. Generally, it is simply a cash gift transferred from one family member (ie. a parent), to another family member (ie. a child), while, in this case, the parent is still alive (ie. inter vivos), rather than after death (ie. a testamentary transfer). Consequently, this method used in Estate Planning to transfer money inter vivos, rather than testamentary, thus minimizing future estate taxes.

Thus, in the Estate Planning context, one can define "cash gifting" as the inter vivos transfer of a sum of money to another individual who is usually a family member, friend, or someone else with whom the gifter has a prior relationship.

Since the IRS will only allow the "gift" exception on taxation to be applied if the gift were given without the expectation of receiving anything in return, they must look at the circumstances surrounding the gift in order to determine the motivation of the gifter. In the context of a parent and child, it is reasonable to conclude that the parent is giving the gift to the child out of love, without the expectation of receiving anything in return, and as a consequence, case law supports the application of the IRS Tax Code, Title 26, Sections 2501-2504, and 2511 to such transfers.

Cash Gifting in the How to Make Money Context

Here is where we have to look at the intent of the IRS Tax Code. As discussed above, the purpose of Title 26, Sections 2501-2504 and 2511, is to allow and individual to give a "cash gift" up to $12,000 per annum, without the expectation of receiving anything in return. The way that cash gifting programs attempt to satisfy this requirement is by having the gifter sign two forms. One form is called a, "Gifting Statement". This form states that the gifter is sending a gift of (X) amount of dollars to the giftee, and expects nothing in return. The other form is called a, "Non-Solicitation Statement". This form states that the giftee did not solicit the gifter for a cash gift. Once these two forms, along with all cash gifts and fees are received by the giftee and the program administrator, the gifter may now begin to receive "cash gifts" of their own.

While I must give the how to make money cash gifting set-up a little bit of credit for creativity, it is clear that Title 26 of the IRS Tax Code was not intended to apply to such transactions. Just because you sign a piece of paper stating that you are not doing something, does not mean that you are not doing exactly what you are claiming not to be doing.

Let us go back to the "Gifting Statement". This is a piece of paper signed by an individual who is entering into a cash gifting program in an attempt to make money, not for the purpose of giving a random stranger money. If the gifter were to simply send a cash gift to the giftee, and do nothing further (ie. no marketing, recruiting, promoting, etc.), then we could reasonably infer that the "cash gift" was given without the expectation of receiving anything in return. However, once the gifter enters into a structured program, and attempts to encourage others to join the program for the purpose of receiving cash gifts, it is clear than this original gifter always had the expectation of receiving something in return for their gift.

The second signed statement is the "Non-Solicitation Statement". This is a piece of paper signed by the gifter which asserts that they were not asked for their gift. Unless the gifter just randomly paged through the White Pages and sent a cash gift to the first name which caught there eye, there is really no other way that the giftee would have gotten their attention but to solicit their so-called cash gift. In other words, the Non-Solicitation Statement is contradictory on its face, as the giftee always in some way, shape, or form solicits a gift from the gifter.

In conclusion, it is clear that cash gifting in the Estate Planning context, not cash gifting in the how to make money holds the true intent of a non-taxable cash gift under the IRS Tax Code, Title 26, Sections 2501-2504 and 2511. Consequently, a so-called "cash gift" received from a gifter by a giftee under any cash gifting program is taxable by the IRS.

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