Quote:
Originally Posted by Bobito
In fact, making transfers like this is often directly related to evading taxes. The US government requires all transfers over a certain dollar amount to be reported (even among one's own accounts); other countries have similar requirements. Later, in the US, at least, there is a (usually fairly small) cap on the value of "gifts" (28K is in excess) - that is, if A transfers to B a quantity in excess of X then A has to pay taxes on the quantity as if it were income (although sometimes A can pass the obligation to B). These laws are motivated by preventing tax evasion, and by detecting movements of money generated by illegal activities (e.g. selling drugs or playing poker online). Gamblers tend to think of taxes as avoidable rake; the government sees gambling as politically defendable revenue (like cigarette taxes). In the situation described by the OP, there was some exchange, rather than merely a transfer, but I suspect that convincing the IRS of this, is not so simple - put another way - if what one receives of equal value for the transfer is not in and of itself legal - then one has problems with the tax man.
There follows a quote from the IRS web site:
(http://www.irs.gov/businesses/small/...164872,00.html)
1.) Not complying with reporting requirements is not the same thing as evading taxes. One could fail to file certain reports that one was supposed to file, but if one correctly reported his income (or gifts by him or other taxable items) and paid the tax(es), then one has not committed tax evasion, despite having failed to comply with certain reporting requirements. I'm not that familiar with all reporting requirements. I'm pretty sure though that you do not have to report all transfers over a certain dollar amount (even among your own accounts). If I transfer X dollars from my y bank account to my z bank account I don't think I have to report anything; the bank may have to though.
But anyway, the point for #1 is that just because you didn't follow some reporting requirement, does not mean that you evaded taxes.
2.) With respect to gifts, I believe that what you are trying to refer to is the annual exclusion amount. In the U.S. this is currently $13,000. Every individual can gift to every other individual an amount up to $13,000 without having to file a gift tax return. If you gift $13,001 to someone, then technically you are supposed to file a gift tax return. However, I doubt there are many people who actually do so if they gifted $13,001 to someone.
If you happen to be married, then you can split gifts with your spouse and consequently you can gift $26,000 to every other individual without paying any gift tax or using any of your "applicable credit" or "unified credit" (explained later). However, you do have to file a gift tax return to split gifts. If you want to gift it to an indvidual who himself is married, then you could gift $26,000 to him and $26,000 to his wife, for a total of $52,000, without paying any tax or using your applicable credit
You can gift an unlimited amount to your spouse (the federal government does not recognize same sex marriages or civil unions and that includes for this purpose of the marital deduction).
Because of the applicable credit everybody can give away slightly over $5,000,000 during life and at death (combined) without paying any gift or estate taxes. Annual exclusion amounts do not count here. If you give away $20,000 to an individual, then you only use up $7,000 of your applicable credit. The other $13,000 is covered by the annual exclusion, which was discussed above.
However, if Congress does not act, then at the end of 2012 the applicable credit will decrease to $1,000,000.
3.) You mistate the gift tax. You state that
"if A transfers to B a quantity in excess of X then A has to pay taxes on the quantity as if it were income (although sometimes A can pass the obligation to B)." This is wrong. A would not pay taxes on the quantity as if it were income. He would pay the gift tax on it (assuming that he had previously used up his entire applicable credit.) The income tax and the gift tax are completely different taxes. As a side note: gifts are not considered to be income. Therefore, B does not have to pay income tax on the gift he receives from A.
I've never thought about trying to pass the burden of paying the gift tax to the donee. I suppose it could be done. But just initially and without giving it any thought it seems a little silly. Why doesn't the donor just gift less money to the donee? You can arrive at the same result without doing any legal work.
4.) I disagree with the reasons you give for why the gift tax was passed in this country. It was not passed as a measure to prevent tax evasion or to detect money movement. The gift tax was passed so that people could not avoid paying the estate tax by giving away their assets before they died.
5.) None of this stuff about the gift tax is remotely relevant since the transaction discussed in the original post of this thread is CLEARLY NOT a gift. I read the quote you posted a link to on the IRS website. You seem to think that this is a gift because the original poster transferred money and received nothing in return.
However, the original poster entered into an arms length transaction by which he would transfer something to Brad and Brad would transfer something to him. The fact that Brad didn't perform on the contract does not transform the transfer from the original poster into a gift. (And the fact that the contract may violate a Statute of Frauds rule of whatever the relevant jurisdiction is does not affect this.) Maybe, Brad could have tried to claim it was a gift and they didn't have a deal or a contract and the original poster was just sending him the money to be nice. I think you see that a lot on those daytime courtroom shows. However, I think everyone here believes that that is not the case here.
Oh man, if that were how it worked, wouldn't that just be piling on. Someone makes a deal to transfer X and receive Y in return. They transfer X and their counterpart never transfers Y. So they are out X without getting Y (they got robbed) and now the federal government wants Z taxes because X was transferred for nothing. That would suck if that was actually the rule.
*DISCLAIMER: The above is NOT legal nor accounting advice and none of it should be construed as such.*
