My inlaw wants to gift us each $14000 then wants us to turn around and gift it back to his children. Can we run into problems by doing this favor?

[TaxUser1]

He's trying to get around the limit, but are there consequences to our taxes?  We also have children.  I understand there is a lifetime limit.  Would ours be affected?  He also wants his spouse to gift us $14000 for a total of $56,000/ year 

[Critter · Accepted solution]

That is called a tax avoidance scheme that I would steer clear of if I were you ... however, they can give more than the max $14K if they want they would just need to file a gift tax return even if they would not owe any gift tax.

Or if they were smart they would give $14K to each this tax year and come Jan 1 they can do it again and the max increases to $15K in 2018. 

"Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.

You will have to file a gift tax return to report the gifts, but you will not actually have to pay any gift tax unless you have made gifts totaling over $5.45 million over your lifetime.

A gift tax return is separate from income tax. It does not go on her income tax return. TurboTax cannot be used to prepare a gift tax return.

See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...

[TaxGuyBill]

I agree with Critter, don't get involved with something that is trying to fraudulently hide something.  Your in-law is not really Gifting you $14,000 each, he is effectively Gifting that amount to his children.  So it would still need to be reported on his Gift Tax return.

[fanfare]

When the Estate Tax is eliminated, this all becomes moot. Meanwhile the middle class, like you and me, gets the shaft with this plan.

[TaxUser1]

Thank you !!!  I thought it sounded sketchy. It didn't know how. Thanks for responding!   Kept us out of trouble. Much appreciated.