Last week on my other tax blog:
What 401(k)s cost Uncle Sam;
Adoptive parents wait on tax refunds
New Hampshire eliminates gambling tax

Rarely-filed gift tax could factor in John Edwards' campaign hush money charges

The U.S. Treasury gets its money from a variety of tax sources.

Collections data for 2010 show that gift taxes accounted for more than $ 2.7 billion. That's a lot of money, but it was only a fraction, literally, of the almost $1.9 trillion in taxes that the Treasury netted after refunds were paid out last year.

Zero-point-1-percent-gift-tax-collections-2010 Specifically, the Internal Revenue Service Data Book 2010 reports that gift tax payments last year accounted for just 0.1 percent, both in gross and net calculations, of last year's overall tax collections.

And that percentage is this week's By the Numbers figure.

For comparison, the IRS says employment taxes -- Old Age, Survivors, Disability and Hospital Insurance (OASDHI), Federal Insurance Contributions Act (FICA), self-employment, unemployment insurance, and railroad retirement -- accounted for 43.7 percent of 2010's tax collections. In dollars, that was almost $820 billion.

Another $814 billion, or 43.4 percent of collections last year, was from individual, estate, and trust income taxes.

Tiny tax, big interest: But the tiny gift tax figure caught my eye for two reasons.

First, it's the smallest contributor to the 2010 tax collection total. The next smallest group of taxes at 0.2 percent came from the railroad retirement category.

Self-employment taxes were 0.3 percent of 2010's net tax collections. Estate and trust income taxes accounted for just 0.5 percent, while straight estate tax payments came to 0.9 percent of the 2010 total collections.

The second reason that gift taxes are of interest is that such a payment has come up in connection with the recent federal indictment of former presidential candidate John Edwards.

Edwards, whose last elected office was as U.S. Senator representing North Carolina, is facing felony charges that he used around $1 million in campaign-related funds as hush money to keep his affair with Rielle Hunter quiet.

Gift vs. campaign contribution: Edwards has pleaded not guilty to the charges and has said the money in question, which came from  his now deceased campaign finance chairman and banking heiress Rachel "Bunny" Mellon, was a personal gift from each.

Mellon even reportedly filed a gift tax return in connection with the $700,000-plus she gave Edwards.

That possibility could be enough to raise enough doubt about the government's charges to get Edwards off the legal hook.

Tax returns are private and I doubt Mellon (or her attorneys) will  voluntarily present her tax paperwork to confirm her intentions when she gave Edwards more than $700,000. Will prosecutors try to force the 100-year-old heiress to prove via an IRS Form 709 filing that she considered the money a personal gift?

Edwards, meanwhile, doesn't have to produce any IRS documentation to prove the money was a gift.

Not only are gifts of money free from income tax, any tax-related reporting is the responsibility of the giver, not the recipient.

If the Edwards' case does ever make it to trial -- he's rejected a plea deal, but some legal folks think the charges might be dismissed in pretrial motions because of the murky election law territory being used as the basis for the charges -- look for taxes to play a part.

Related posts:

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Brandon Marx

Well I would still prefer the gift method.

Tax Questions Answered

Great information. Thanks for sharing.

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