Discussion:Loan to a relative for an investment
From TaxAlmanac
| Revision as of 22:36, 20 April 2006 Jdugancpa (Talk | contribs) (I would advise J) ← Previous diff |
Revision as of 22:41, 20 April 2006 Sfrey006 (Talk | contribs) (Ted is his cousi) Next diff → |
||
| Line 28: | Line 28: | ||
| {{ForumReplyPost|UserID=Jdugancpa|Date=20 April 2006|Text=I would advise Joe to run from this sort of "favor" being provided by cousin Ted. If it sounds too good to be true, it probably is. Any transaction that is structured so the a "gift" is made in year one with a "gift" promised in return in year four is bogus.}} | {{ForumReplyPost|UserID=Jdugancpa|Date=20 April 2006|Text=I would advise Joe to run from this sort of "favor" being provided by cousin Ted. If it sounds too good to be true, it probably is. Any transaction that is structured so the a "gift" is made in year one with a "gift" promised in return in year four is bogus.}} | ||
| + | |||
| + | {{ForumReplyPost|UserID=Sfrey006|Date=20 April 2006|Text=Ted is his cousin, who is an MBA graduate of Wharton, working at a private equity group and is putting $200k of his own $$$ in it. Assuming Ted is no threat...the guy is an ivy leaguer and family. So, for the example's sake lets assume Joe can trust family. Is the 'gift' the best way to structure... | ||
| + | |||
| + | By the way...I called a friend who is a securities attorney. He said there is no legal reason why Joe can't make a gift to Ted AND the only legal issue would be any contract that Ted has with the Equity Group where he is employed.}} | ||
Revision as of 22:41, 20 April 2006
Discussion Forum Index --> Tax Questions --> Loan to a relative for an investment
| 20 April 2006 | |
| Joe, the client, has a cousin (Ted) that works at a private equity group. Ted has been given the opportunity to invest in a company that "should" result in a great return within 4 years. Ted approached Joe with an offer for Joe indirectly invest in this venture. Joe wants to send $35k to Ted. Ted will "call it his own" (while making the investment on behalf of Joe) and make the investment in the venture. Lets assume they cash out of the deal in year 4 and the $35k is now worth $100k.
How I would think it would go down.... Joe gives Ted $35k as a gift. $35k - $12k exclusion = $23k x gift tax rate = gift tax liability. File form 709 and use $23k of the Unified Credit. Then.... in, say, 4 years (when the investment is cashed out.... Ted would "gift" the $100k back to Joe. Ted would file a form 709 for the $100k - $12k = $88k...and use the Unified Credit for the gift back. If Joe felt guilt about using up some of Ted's Unified Credit, Ted could just not use the credit, make the gift back "net of the gift tax" effect (out of the $100k proceeds, and then pay the gift tax. Is this correct thinking? Should I consider more the "loan" route? | |
| 20 April 2006 | |
| Make sure no one's violating securities law. That's a fed felony, too. This sounds fishy, and probably near illegal if not totally. Not my area, I just see some brightly colored flags waving and hear horns in the distance. | |
| 20 April 2006 | |
| Agreed. I will recommend him speaking to a securities attorney. | |
| 20 April 2006 | |
| I would advise Joe to run from this sort of "favor" being provided by cousin Ted. If it sounds too good to be true, it probably is. Any transaction that is structured so the a "gift" is made in year one with a "gift" promised in return in year four is bogus. | |
| 20 April 2006 | |
| Ted is his cousin, who is an MBA graduate of Wharton, working at a private equity group and is putting $200k of his own $$$ in it. Assuming Ted is no threat...the guy is an ivy leaguer and family. So, for the example's sake lets assume Joe can trust family. Is the 'gift' the best way to structure...
By the way...I called a friend who is a securities attorney. He said there is no legal reason why Joe can't make a gift to Ted AND the only legal issue would be any contract that Ted has with the Equity Group where he is employed. | |
