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Gift Vs. Wages

Discussions relating to Personal Injury Law

Gift Vs. Wages

Postby Jonah » Wed Nov 30, 2016 10:54 pm

My mother-in-law is 89 with dementia.  My father-in-law age 91 has COPD.  They are both unable to care for themselves.  My sister-in-law has decided to pay herself for staying at their home 5 days a week to take care of them.  They have a home health aide that comes in twice a week to bathe them and get a free meal weekdays delivered from the local senior health center. She insists the money she earns is not subject to income or employment taxes since she wrote herself a check for $13,000 the last day of 2010 and $13,000 in January 2011.  She plans to get the rest of her "pay" by writing $13,000 checks to her adult children during 2011.  She thinks this would make the entire arrangement non-taxable to her as "gifts" since no one person receives over $13,000.  I told her this is not correct and that she cannot allocate her "wages" to her adult children in order to avoid taxes.  Am I correct on this?  My in-laws have never given any gifts near $13,000 and are so old and sick right now that they really don't know anything about their money situation any more.
Jonah
 
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Joined: Mon Jan 06, 2014 11:14 pm

Gift Vs. Wages

Postby Jamal » Thu Dec 01, 2016 3:40 am

Here's a follow up to your response - if you're a revenue agent with the IRS, you might also have an obligation to report her(I don't know the rules on that) or your own job might be in jeopardy - I know that IRS employees are held to a very high standard, so you need to be very cautious here.

Good luck.

Thank you for your question.  This is somewhat outside my field of expertise, but ....

You are correct - it sounds to me like your sister-in-law is engaging in felony tax evasion [tax fraud], which is subject to criminal penalties [as compared with "tax avoidance", which is smart tax planning that stays well within the bounds of the law].  A gift is given freely with no "tit-for-tat".  Your sister-in-law is "giving" services in exchange for money.  She wouldn't provide the services without the money [and if she says she'd gladly provide the services without the money, then hold her fingers to the fire & see what she does].  

So no matter how cleverly she tries to disguise it, it's compensation and it's subject to income tax.  By giving money to her adult children, she is making them co-conspirators and subjecting them to potential federal tax prosecution along with her.  She(and they) may get the opportunity to enjoy the hospitality of "Club Fed" for several months(or more) if they don't report the income.

In addition, if your in-laws don't understand what she is doing, she could be liable for financial abuse of the elderly.  If your in-laws live in California, that's a felony, too.  Several other states have similar laws.

By the way - I'd be terribly concerned about how your sister-in-law might change her tune if she were injured "on the job" - what if she strains her back helping one of your in-laws out of bed or out of a chair?  My guess is that she'd try to claim it was a work-related injury and that all of a sudden those "gifts" would become "income" so she'd qualify for disability payments.  Anyone who is providing home health care services should be covered by insurance [disability and worker's comp]!  And it's the employer's duty to provide it.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Jamal
 
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Joined: Thu Jan 16, 2014 3:19 pm


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