Gifting Clubs

[DaveO]

Anyone have a cite for a court case regarding taxability of proceeds from a gifting club? I have a client involved in one. Each new member "gifts" $1000 to their sponsor and also gives their first recruit to their sponsir after which they retain the "gifts" from everyone else they bring in.

I have found that many states view these clubs as illegal pryamid schemes but I haven't found any guidence on taxation yet. Each member signs a document stating that they are making a gift with no expecation of renumeration. I've explained the substance over form issue but haven't made a dent in the client's belief yet.

[JohnH]

You probably can't convince him if he doesn't want to listen, but I doubt it matters anyhow.

1) When he gets so far up the list that he's raking in $1,000,000 a year, he won't be using your services anyhow as he will have his own full-time accountant counting his money and preparing his returns;

or, (more likely)

2) After he pays out his $1,000 payment, he won't be able to round up someone dumb enough to pay the $1,000 to his sponsor, so it will end there anyhow. Just be sure he understands that the same rules he's relying on to avoid taxation on his gifts mean he can't take a tax deduction for the $1,000 he gets snookered for...

[joanmcq]

Pyramid, Ponzi....

There was a big one going on here in Sacramento that got busted-"Women helping Women". Ripping off women was more like it.

[taxea]

http://www.cashgiftingwatchdog.com/basics/cash-gifting-law