Just go to this website at the FTC: Gifting gotcha.
A lesson to be learned here is that scams may quote you a true, legal fact such as “you can write off gifts up to the exclusion amount of $13,000 on your taxes.” That is only one rule in a large set of tax rules in Title 26 of the Code of Federal Regulations for the IRS.Yes, partial scams use partial truth and hope you don't do any homework.
Check further and you'll find the IRS rules on what is considered a gift. From the “Frequently Asked Questions on Gift Taxes” site at the IRS [see IRS FAQ on Gifting], they provide this definition:
What is considered a gift?Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.
You cannot receive more money back than you gifted. This is what this scam promised by shuffling money amongst the trusts. Yet realize still that only a few at the top of the pyramid would have made money from the newest entrants. A very sly pyramid scheme using partially legal means.
Think about this scenario: I have $13,000 in cash and we're standing together. I hand you (gift you) the $13,000. You hand it (gift me) back. There. We've gifted $13,000 to each other, right? Don't try to write off $13,000 on your taxes though. That's what the IRS is preventing. If that was possible, everyone could do this with enough friends to reduce their taxable income to nothing.
Think about this scenario: I have $13,000 in cash and we're standing together. I hand you (gift you) the $13,000. You hand it (gift me) back. There. We've gifted $13,000 to each other, right? Don't try to write off $13,000 on your taxes though. That's what the IRS is preventing. If that was possible, everyone could do this with enough friends to reduce their taxable income to nothing.
Here are a few more sites on Gifting schemes which became popular after 2000:
TANSTAAFL
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