$25,000 Cash Gift From Father Poses Problems
Q: I have just been given $25,000 in currency from my reclusive father. This money has never seen a bank. Over the years he made small “deposits” in a box he kept in his apartment. He hates banks and thought his savings would make him ineligible for the low-income housing he enjoys today. How can I deposit this cash in my bank without drawing any inquiries that may point to my father? -- T. A. M .
A: Your story raises several legal and ethical issues, not the least of which is whether the facts are exactly as you recite them. Surely you must realize that a $25,000, largely untraceable, cash hoard would raise more than a few eyebrows in the law enforcement community. But our purpose here is not to challenge you but rather to explain the ramifications of the situation you face.
According to the letter of the law, there is absolutely no way your father can give you a $25,000 gift, in cash or by check, without reporting it to the Internal Revenue Service. Furthermore, you will be required to file a report to the federal government if you attempt to deposit the entire $25,000 in a single bank account.
However, from the outset, let’s be clear about one thing: Without addressing the issue of your father’s eligibility for low-income housing, your father did absolutely nothing illegal by accumulating $25,000 in cash and giving it to you. It’s within his rights to make such a gift, and it’s within your rights to accept it. However, both of you will have problems if you attempt to hide this transaction.
At the least, your father’s gift of $25,000 requires that he file a gift tax report with his income tax return. This does not mean that he must pay any taxes. In all likelihood, he need only report the fact that he made the gift. The amount of the gift will be subtracted from the $600,000 he can leave tax-free in his estate, but from the situation you describe, this should not pose a problem to your father. However, without knowing more, it is impossible to determine whether reporting this gift would trigger a reassessment of your father’s eligibility for low-income housing.
Your accepting a $25,000 gift requires no special filing with the government. However, if you attempt to deposit it as one lump sum in a bank, you will be required to complete what is known as a “currency transaction report,” a form banks require for all deposits of $10,000 or more. This type of reporting was imposed to crack down on money-laundering operations of organized crime members and drug traffickers. You could divide the money into smaller amounts and deposit them in three or more banks, but federal law allows banks suspecting such activity to launch a probe aimed at uncovering other cash bank deposits by the same person. These deliberately less-than-$10,000 deposits are officially known as “structured transactions.” However, law enforcement officials and criminal elements call the practice “smurfing,” after the tiny, blue TV cartoon characters best known for their frenetic antics.
By whatever name, such activities were outlawed in 1986 to help catch money launderers. The maximum penalty for smurfing is five years in prison and a $10,000 fine. Doesn’t hardly seem worth it just to get a gift from Dad, does it?
The IRS permits individuals to give another person up to $10,000 per year without reporting it. Depositing that amount of cash would also not trigger a reporting requirement on your part.
Community Property Is Reserved for Spouses
Q: In a recent column you wrote that couples holding property in joint tenancy can draft an agreement between them stating that these assets, while held in joint tenancy, are really community property. Will this sort of agreement work with property held among parents and children, or grandparents, parents and children? -- A.C.
A: No. Only property held between spouses is entitled to be treated as community property in states, such as California, that recognize community property. In all other cases, the property must be held in joint tenancy solely.
