Cash Gifting – Why It Should Be Avoided

Perhaps in your search for how to make money, you have come across a scheme known as cash gifting. There are thousands of websites all over the Internet just waiting to convince you that such a scheme is a great way to make tens of thousands of tax free dollars in very little time. These websites try convince you that they are legitimate by stating that United States IRS Tax Code, Title 26, Sections 2501-2504 and 2511 makes such schemes legal. The pertinent section of the Code states:

One is able to legally transfer up to $12,000 USD within a calendar year to as many individuals as they would like. This sum of money does not need to be reported to the Internal Revenue Service provided that it is within the $12,000 limit. Unfortunately, these cash gifting schemes tend to neglect the most important part of the Code. In order to qualify under this section as a tax-free gift, the money must be given with no intention of receiving anything in return. In other words, it must be an actual gift.

Just think for a moment. If you were to send cash to a stranger, would you not expect something in return? You would at least expect to make your money back. No matter what anyone says, there is not one single person involved in a cash gifting program whose intent was to simply give a stranger a gift out of the kindness of their heart. It is clear that the IRS Tax Code, Title 26, Sections 2501-2504 and 2511 were not intended to exempt transfers made via cash programs from taxation. Therefore, anyone who is involved in a cash gifting program, and attempts to avoid taxation under the guise of the aforementioned Tax Code, will most likely be subjecting themselves to tax evasion charges. Furthermore, these sections of the IRS Tax Code merely determine whether a specific form of income is taxable or non-taxable, not the legality of a business or activity structure.

1) The Structure of Cash Gifting

Cash gifting programs are generally formed for the purpose of recruiting other members who only gain membership after providing their cash gift, administrative fees, and paperwork to individuals already within the program. Most of these programs, if not all of them, offer absolutely no product, or service, and attempt to distinguish themselves from the illegal pyramid scheme with structural creativity.

2) Traditional Cash Gifting Clubs (Pyramid Schemes)

This cash gifting structure has been around for decades, if not an entire century, and has lead to the drafting of specific legislation in numerous countries (including the United States) to outlaw these sorts of clubs. Often referred to as pyramid schemes, due to their “infinite” geometric progression and impossibility of sustainability. It is based on a business model, which will knowingly eventually fail due to the fact that there are not enough people on the planet earth to sustain it. This form of cash gifting involves the transfer of money, primarily for recruiting other people into the pyramid, usually without a product or service being obtained in exchange.

3) Internet Age 1-UP Cash Gifting

This form of modern day cash gifting is perhaps the one which you are most familiar with. It really hit the Internet by storm in the late stages of 2007. In order to distinguish itself from the aforementioned pyramid scheme, which has been conclusively deemed illegal, administers of these programs became creative. They came up with what is called the 1-Up Cash Gifting Structure. Within this structure, there is arguably no infinite pyramid. Rather, the structure creates a beginning and end, referred to as a receiving line. For instance, Person A brings Person B into their cash gifting scheme. Person B then immediately brings Person C into the scheme. However, Person C does not send money to Person B. Rather Person B must pass up their first gift to the person who brought them into the program. Hence, Person A receives money from Person C, which is why this is called 1-Up cash gifting. Once the 1-Up has occurred, the receiving line between Person C and Person A is broken, and Person B is able to recruit people into the scheme and take their money. *To learn more about these schemes, please visit the website listed at the bottom of the page.

Nonetheless, we know of no black letter or case law to determine the legality or illegality of this structure. Perhaps this is due to its infancy. Regardless, it resembles too strongly past pyramid schemes which have ample black letter and case law to be deemed felonious in a myriad of states, as well as countries around the world.

While the final decision is up to you, we recommend that you proceed with caution for a couple of reasons. The first reason is due to the fact that internet cash gifting is in such a gray area right now, you do not want to end up being the first defendant in State v. Your Name. Furthermore, if you decide to take your chances with cash gifting, other people will be very apprehensive not only to send untraceable cash to an absolute stranger (you), but will also have concerns of ending up being the named defendant in State v. Their Name. Hence, we conclude that if you are searching for how to make money, that you avoid cash gifting.

Do not become a victim in the Cash Gifting scam. To learn more about Cash Gifting and why you need to stay away, visit analogiclabs.com.

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