IRS and Legal Gifting Clubs

1. The language they use to promote their program
2. The structure of their program (usually called the “plan”)
3. The Offer

Let’s take a look at Number 1:
If the sales pitch talks about any of these things then they are or will soon be illegal.

• Investing
• Earning
• Selling

To qualify as a gift there has to be no expectation of anything in return for the gift. All gifting programs cover this one easily by having the giver sign an agreement that they expect nothing by giving the gift. Occasionally a person promoting a program will use the above words because they don’t know any better.

Now for number 2.
The structure of the pay plan can not be multilevel. Previous legal rulings that have come down regarding affiliate programs have defined multi-level as more that two levels. You will find lots of two tier programs at the major affiliate programs. Amway was nearly shut down because the appearance of recruiting for profit with no product involved would qualify them as a Ponzi scheme. They set down the law with their distributors to clearly state that no money was made by recruiting, only by product sales. So any gifting program will become illegal if they have a multi-level pay plan. I you see a picture of a matrix in a plan stay away.

Now for number 3.
Since there is nothing being sold and no expectations of a return then there are no profits to be made. Using the normal language surrounding a business like ROI, investing, selling, profit, loss and guarantee are all disallowed words that will disqualify gifting as a charitable act and put it solidly into the area of fraudulent business.

The IRS looks at gifting as a legal practice of transferring wealth form one person in a high tax bracket (estate tax) to someone in a lower tax bracket, thereby reducing the value of the estate prior to death (when the estate is taxed with all the might that government can bear).
The legislature has fixed the limit of annual giving to $12,000 which is somewhat attached to inflation. (…means the number will go up as long as government sanctions the printing of money)
Politicians use gifting quite often to transfer wealth so it’s rather unlikely that they will disallow themselves from doing it.
Any gift falling under the annual limit is not taxable to the giver or the receiver.
Recipients of gifts can make lots of money tax free by getting lots of gifts under $12k.

Leave a Reply