A local charity is accused of structuring.  What is that?  Structuring money is reducing a deposit or payment into multiple, smaller amounts.  The intent is to avoid the financial institution’s reporting requirements.  It’s also called smurfing.  Laws regarding structuring came about through the Bank Secrecy Act and other laws after 9-11.  Those laws pressured banks to not have money tied to terrorism.  The IRS website details the Bank Secrecy Act and Structuring.  Recall The Money Skinny™ mission is to save you time and money.  Let’s review some examples of when structuring may impact you.  Specifically, opening accounts and gift taxes.

Opening an Account

As sports team treasurer, I was responsible for team finances.  See The Money Skinny™ article Treasurer Duties for a Club or Organization.  The team needed a simple checking account to pay bills.  Spending about $4k annually.  Parking lot meetings netted social security numbers and driver’s licenses of team honchos.  I created an employer ID, a statement of organizational purpose, etc.  Similar requests occur when you open a checking/savings/investment account.  Opening an IRA?  Prove you are who you say you are.

Why the Hassle

Why the hassle for a bank to take your money?  The Federal Reserve traces the origin of payments.  It ensures the overall safety of the U.S. monetary system.  Gathering documents can be time consuming.  But that’s a necessary step that benefits all of us.   By the way, have you seen the Federal Reserve building in St. Louis?  Dang, that fortress is a confidence booster.

Structuring Money Gifts

The 2017 annual gift tax exclusion is $14,000 per donor.  I want to give one of my children $20,000.  Outrageous hypothetical example.  I can gift a maximum of $14,000 tax-free.  One of us owes taxes on the $6k overage.  Skirting the limit by making two payments of $10k each is structuring.  It’s illegal.  Don’t do it.

Home Mortgage

Suppose Junior applies for a home mortgage.  The parent is gifting a $20k down payment.  The mortgage company needs to know the source of that gift.  Attested to by the giver.  Probably in the form of a signed letter from the parent.  Maybe even notarized.  When Junior provides historical bank records, that gift will be evident anyway.  Even if not previously disclosed.

Additionally, does the parent or Junior owe gift taxes on $6k overage?  Probably not.  Recall the gift tax exclusion is per person.  So both parents can gift Junior a total of $28k tax-free.  Or one parent could gift $14k to Junior and $14k to a home co-owner.  More information on gift taxes is available on the IRS.gov website .

Origin of Payment Transparency

It feels like a privacy bubble.  Making payments and transferring money on our phones and in our homes.  It’s not.  The Federal Reserve oversees all financial activity within the U.S. banking system.  A large sum of money appears in your account?  You may need to verify the source of those funds.

• Structuring money is reducing a deposit or payment into multiple, smaller amounts so that they aren’t reported.  It’s illegal.
• The Federal Reserve ensures the overall safety of the U.S. monetary system.
• The annual gift tax exclusion for 2017 is $14,000 per donor.