What Makes Cash Gifting Illegal in the U.S.?
"Cash Gifting" is not illegal in the United States. In fact, it is a perfectly legal way to lower future estate tax debt. However, pyramid schemes that claim to use "cash gifting" as a method to avoid paying estate tax are illegal.
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Legal cash gifting
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Legal cash gifting is when one person gives another a sum of money (no more than $12,000 a year, per person) with no expectation of return. Neither giver or receiver have any tax liability in this situation.
The intent of legal cash gifting
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The intent of the law is to reduce future estate tax debt, by distributing assets during a persons lifetime, rather than at death.
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How pyramid schemes abuse cash gifting
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Pyramid schemes use cash gifting law as a cover for their illegal activities. While they claim to follow the letter of the law, the implication is that there will be a generous payoff in the near future.
How the IRS looks at cash gifting
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The IRS views pyramid scheme income as a form of investment income and will prosecute for tax evasion if it is not paid.
How federal and state law enforcement look at cash gifting
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Most localities view pyramid schemes as either some form of fraud or what is called "theft by deception." In most states running a pyramid scheme is at least a misdemeanor. In other states it is a felony. The federal government indicts under tax evasion and investment fraud statutes.
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