Yesterday I blogged about North Carolina's controversial Amendment One, which ended up passing by a large margin. I also have some thoughts about another matter in the headlines - the John Edwards trial. I have not been following the case closely, but I do know that central to the case is the money received in 2007 from wealthy donors Fred Baron and Bunny Mellon, Edward's knowledge of the donations, and whether they constituted campaign funds or simply gifts. Edwards former speechwriter Wendy Button testified that Edwards told her that the money was legal because the donors had paid gift taxes.
However, the matter of the gift taxes is not so simple. In 2007, the federal gift tax exemption was $2 million, meaning the Baron and Mellon could have each given someone that amount without paying any tax, provided they had not previously used up the exemption. In any event, a federal gift tax return would be required to report the gift to the donees since it exceeded $12,000 per person. But exactly who were the donees? John Edwards? He certainly benefited from the gifts, since they helped hide Hunter's pregnancy, even if he didn't receive anything himself. Rielle Hunter was certainly a donee, as she received. at least, free rent and a BMW. Andrew and Cheri Young? They apparently kept most of the money to build themselves a house.
So, if Baron and Mellon filed gift tax returns as required, whom did they list as donees? Somehow I doubt the correct names and amount were on the returns. Were the returns later amended to correct the information?
And what about subsequent gifts of the same money? Did Edwards effectively make a gift to Hunter? To the Youngs? Was there a gift from the Youngs to Hunter? Any such gifts in excess of $12,000 would also required to be reported, and the estate tax exemption of the donors would be reduced by the amount of the gifts..
Edwards and anyone else considered to be a North Carolina resident would also be required to report the gift to the North Carolina Department of Revenue, as North Carolina still had a gift tax in 2007 and 2008. In fact, North Carolina's lifetime exemption was just $100,000, and that only applied to close relatives. That means North Carolina gift tax would have been due.
Only a tax lawyer would think about such things - but, the tax laws are laws too, and they should be enforced. I would like to see how this would all unravel if the IRS and NCDOR conducted audits of those involved.
Family members have the best intentions when they offer money to cover college expenses, but if they neglect to use a wise gifting strategy they could affect the student’s eligibility for federal aid. With hundreds of higher education institutions, state and private universities in North Carolina, students have no shortage of options. However, the cost of college can range from several thousand to over $45,000 per year.
