The activity of gifting cash is not considered as illegal. However, most of the programs that have cropped up under the name or tag of 'cash gifting' are scams. The Ponzi schemes being advertised as cash churning machines can be dangerous as people tend to lose money in such scams. There is a thin line between what is considered as legal and ethical. Those who develop schemes in order to rob people off their money indulge into the misuse of the cash gifting practice. One should stay away from such practices. The question, is cash gifting illegal is answered to some extent through this write-up.
Truth of Cash Gifting
The practice of cash gifting is considered legal only if the amount being gifted is less than or equal to $13,000 for a single calendar year; this piece of information is specified in the IRS Tax Code Title 26. You can refer to sections 2501, 2504 and 2511 to obtain more information on cash gifting. The activity of cash gifting is permitted because it helps manage or cut the size of your estate.
However, the way this money is utilized determines whether it is a legal or illegal practice. For example, pyramid schemes make use of the practice of cash gifting. These schemes are structured in a manner that people at the base of pyramid pay more money than they can earn. Therefore, they go on losing money and get duped in the end.
Government View on the Pyramid Schemes
The pyramid schemes are categorized as fraud by the government. Few governments consider this practice as misdemeanor while others classify it as felony. A closer look at the functioning of a pyramid scheme will throw light on this whole issue. Generally the pyramid schemes guarantee a payout of big sums to their members. If a pyramid scheme guarantees you a payout of $20,000 on an entry fee of $2000 there have to be 10 more members who can bear the burden of this amount ($20,000). It is means, you have to persuade 10 more members to join the scheme.
Similarly the other members (say, 10 members including you) who have joined the scheme, should bring in 10 members each. It means the total number of members you all have to bring in, goes up to 100. Now, if you have to hand over $20,000 to each of these 100 members, think about the number of members you 110 people together have to recruit for this scheme. The situation in such case spirals out of control and majority of them lose their money. The pyramid schemes are therefore, considered as dangerous and unlawful by the government.
Donations and Cash Gifting
The cash gifting programs that are advertised as a quick way to earn huge sums should never be relied on. It is common sense that nobody is going to pay more than you deserve unless and until they are earning by illegitimate means. The cash gifting programs that people run these days are not at all trustworthy. Offering money for charity work is an entirely different ideology.
When a person gifts cash or donates money to a charity organization, he/she doesn't expect anything in return. Moreover, the money being donated is spent for some good cause. Cash gifting schemes on the other hand offer you a big sum for the small amount you are 'investing'. It is therefore, necessary to understand that donations and cash gifts are different from each other.
The debate on cash gifting draws different views and opinions. As stated earlier, it is legal to gift an amount up to $13,000 in cash. Creating schemes to steal money from people are always going to be monitored by government authorities. One should not indulge into any unlawful activity and thereby prevent any such trouble. Finally, you should keep one thing in mind that legal action on people who promote Ponzi schemes is bound to happen.