Cash gift received ($10K each for me, wife and 2 kids (5 & 3). Amount is under the gift limit but was deposited as one amount $40K, bank took our SSNs. What is reqd?

[johnny2678]

My Wife's father made a cash gift of $10K for me, my wife, and our 2 kids (ages 5 & 3) - $40K total.  He has not made any other gifts this year to us and is well under the lifetime exclusion.

We deposited the gift as one amount in our joint account and will be adding the kids amounts to their 529 accounts.  The bank took our SSNs because the deposit amount was over $10K.

The Form 709 instructions say a Gift Tax return is not required for my father-in-law, since he did not make more than a $14K gift to any one person.  

Does he need to do anything at tax time?

Do I need to do anything at tax time?

[TaxGuyBill]

He may want to write out and notarize a letter indicating the Gift situation, particularly the Gifts to the kids.  If it was all deposited into your bank account, the IRS COULD assert the Gift was all to you, and not to the kids, which would require him to have a Gift tax return.  That Gift letter would also protect you in case the IRS were to think that money should be taxable income to you.

[Critter]

Yes, he should have written 4 separate checks in the names of each recipient.

[SweetieJean]

Right, but toddlers can't cash checks!

[Critter]

No but parents can open bank accounts in their names & negotiate the checks on their behalf as guardian trustee.

[johnny2678]

Gift was not in checks, he only gave cash. The reason I did one deposit is that my kids don't have their own bank accounts, but they do have 529 plans.  And I read that if you purposely chunk up a large deposit into smaller deposit, the IRS can come after you for "smurfing".

[johnny2678]

Thanks for all the responses.  Doesn't seem to be a consensus.  1 for No tax implications; 1 for no tax implications, but a clarifying letter wouldn't hurt; and 1 yes, there will be tax implication because he gifted cash not checks.

Can anyone definitively clarify?

[TaxGuyBill]

The actual transaction has you described it (4 separate Gifts) has no Gift Tax implications.  Period.

Because it was all done in cash and all deposited at once into one bank account, there is no proof that it was 4 separate gifts.  So if the IRS were to question it (which is unlikely), they could asset it was not 4 separate Gifts.  That is way creating some 'proof' (such as a Gift letter) may be a good idea.

For the future, if multiple gifts are given, avoid doing it in cash.  Use checks or certified checks, with each person's name on the check, and a notation that it is a Gift.

[Critter]

The kids checks could have been written out to the 529 plan directly.

[Critter]

No & No