Is loaning interest-free money to relatives illegal?

Quote from MsGal : Thank you for this info. I had no idea that loaning interest-free money was illegal. I have no idea how much they lent their kids but if the IRS took notice, I'm guessing it was a pretty large amount. I called her tonight and told her what I read here. I could hear her husband in the background, "Fine! F*ck the government! Starting next month we're giving the kids really expensive TV's and watches and sh*t, with gift receipts. They can return everything and keep the f*cking money." They are the kind of people that are determined to die broke so the government gets nothing. Can't say I blame them. That's certainly our plan.

Think about that for a minute...


You can get a lawyer and CPA to hide your money much better.

Quote from sd444 : Think about that for a minute... You can get a lawyer and CPA to hide your money much better.

Seriously, if you are talking about a considerable amount of money, you should find someone you trust, like an accountant, who knows the laws.

Right now (from my basic understanding) the dad can give everyone up to 13K (his kids and grandkids), then mom can also gift 13K (kids and grandkids). That's 26K a year per person. However the one getting the money could have some tax issues with a larger sum.

What about a trust or college fund? You could get life insurance (it's not taxable when you die). There are some great financial vehicles out there but they (the gov't) keep screwing with the taxes and the laws so I would recommend an accountant or financial adviser.

Quote from sd444 : OP was most likely doing other shady shit to get audited. Then during the audit the "loans" were uncovered. Government has no way to track cash gifts. $10k+ checks will most likely get tracked. Hint: Don't do shit to get audited and you can hand money out.

Not that I can afford it, but if I gave my retired dad a car would that put me or him in trouble?

Quote from Geronemo3 : Not that I can afford it, but if I gave my retired dad a car would that put me or him in trouble?

Was it a $100K+ vehicle?

IRS doesn't have the time nor resources to come after you--ever. The OP has extravagant gifts to multiple people + something else. That something else triggered the audit. Normal W2 with a normal return you have nothing to worry about.

Should of checked with a cpa first. You learn about 'loopholes' like this in beginning tax.

Quote from sd444 : Was it a $100K+ vehicle? IRS doesn't have the time nor resources to come after you--ever. The OP has extravagant gifts to multiple people + something else. That something else triggered the audit. Normal W2 with a normal return you have nothing to worry about.

We sold my husband's car to a family member for $1. Told we shouldn't gift a vehicle but "sell" it.

Quote from StarNova : We sold my husband's car to a family member for $1. Told we shouldn't gift a vehicle but "sell" it.

It's the same as giving below market loans.

Sold car for $1. Had book value of $10K. $3k under limit.
Sold car for $1. Had book value of $50K. $36,999 is taxable.

Again, the IRS doesn't have the time nor resources to come after you for the low amount. Other things will trigger the audit first.

Quote from sd444 : Had book value of $10K.

what exactly determines "book value"?

Quote from slapshot136 : what exactly determines "book value"?

Quick way is to use Kelly blue book, edmunds, prices on craigslist, etc for the exact same car with exact milage. You have a lot of leeway to adjust it but attempting to bring down a $100K BMW isn't going to happen.

Quote from sd444 : It's the same as giving below market loans. Sold car for $1. Had book value of $10K. $3k under limit. Sold car for $1. Had book value of $50K. $36,999 is taxable. Again, the IRS doesn't have the time nor resources to come after you for the low amount. Other things will trigger the audit first.

We're probably okay. It was older but still in good shape. But I would prefer giving it as a gift and taking care of things but it was the lady at the title office that recommended we "sell" instead of gifting. Maybe less paperwork for her?

The reason that so many people have problems with tax stuff is because the IRS doesn't care about what you call something. They have complicated and well defined rules for everything, including what is "income" and what is a "gift". Lets be honest here, you're trying to give money to someone with no tax consequences. This is well known, and the IRS defines things so this DOES have tax implications. The only thing you can really do is change who gets taxed.

I think it's such BS that you're taxed when you earn it, taxed when you spend it, taxed when you save it, taxed when you give it away and then taxed when you die.

Quote from sd444 : Quick way is to use Kelly blue book, edmunds, prices on craigslist, etc for the exact same car with exact milage. You have a lot of leeway to adjust it but attempting to bring down a $100K BMW isn't going to happen.

I was gifted a $50,000+ BMW. That being said, it was to bribe me to not buy a Mustang.... I wonder if my uncle had to pay taxes on that....

fark the IRS.

Quote from MsGal : I think it's such BS that you're taxed when you earn it, taxed when you spend it, taxed when you save it, taxed when you give it away and then taxed when you die.

Get rid of it and everyone will be paid in "gifts" i.e. no taxes would be paid.