Are Cash Gifting Programs Legal?

In the field of home money-making programs, the Internet is awash with review sites whose purpose is to subtly promote a particular money-making program while pretending to be an impartial reviewer of competing programs, which are judged as inferior or even illegal. Usually the program being promoted is a pyramid scheme, and its claim to legality is that it includes a product. As part of their pretense that the product makes a difference, they call cash gifting programs illegal because they don't have a product. Let me give you a bucket of cold water for that steaming pile of bullwhip.

My name is Shano DeLeon. I've been selling home money-making information and programs for about 35 years. I've made up to $750,000 per year from it. I've run my own programs and paid participants millions of dollars. In other words, I know more than a little about the subject.

First, I have three statements that are something like ground rules.

  1. I will not give you any legal advice. The legal professionals have seen to it (through political campaign contributions) that it is illegal to do so unless one is a member of their club.
  2. It is not possible to be sure that any business is in compliance with all of the hundreds of laws and regulations that may apply to it. Even when you read a particular law for yourself, you often cannot tell what the authorities might claim it means. If there is a stupid, blockheaded way to interpret a law, that will be the first choice of at least some authorities. Furthermore, the information you get from an average attorney in relation to promoting money-making programs is unlikely to be accurate or helpful.
  3. Tens of thousands of people make their living promoting money-making programs. Thousands of them make six to seven-figure incomes. The fact is that you can make excellent income in this field and stay out of legal trouble despite all the laws and regulations.

In a cash gifting program, members give other members cash gifts according to a set of rules. I'll use a question and answer format to address the legal and ethical concerns some people have expressed in regard to such programs.

If cash gifting programs are legal, why are people sometimes sent to prison for taking part in them?
No one has ever been sent to prison for giving gifts. People get charged with a crime, not for being in a gifting program, but for promoting a pyramid scheme or for false advertising. If a cash gifting program has illegal aspects to it, then taking part is illegal because of those aspects, not because it's a cash gifting program. If you join a cash gifting program, it is common sense not to choose one that's a pyramid scheme or that is promoted with false or misleading advertising.

If gifting programs are legal, why do they deal in cash?
(In this context, "cash" means "currency".)
It's possible that doing gifting programs in cash is a tradition that developed when most or all of them were illegal pyramid schemes. In the gifting programs of today that I consider legitimate, cash is encouraged, but the final determination is left to the receiver. If you want your gift conveyed to you by check or credit card, you can request it that way.

Unless there is a good reason for an exception, I would require cash. Here's why:

  1. Cash is fun to receive. The activity is called cash gifting because of the appeal of receiving cash, hundred-dollar-bill type cash. There is no good reason to spoil the fun.
  2. Cash is definite. When you get it, you know you have the money and can register that the gift was received. For a check or money order, it takes a week or more to know for sure that it went through without being reversed with a stop payment order. For a credit card, the giver can pull that money back up to a few months later by claiming the charge was unauthorized. Money-making programs tend to draw scammers, and those scammer joiners don't get to work their tricks on their sponsor when they have to pay in cash.
  3. The absence of a paper trail is a benefit. The more money that government agents can track to a person, the more incentive they have to find a way to take some of it.

How can cash gifting programs be legal when there isn't any product?
There are hundreds, maybe thousands, of programs on the Internet and in the mail that consist essentially of making money on the sale of the right to take part in the program. If the money from such a sale goes to someone 2 or more levels (generations) above the seller, it's a pyramid scheme; otherwise it's some kind of chain scheme depending on what the law calls it in that state. Such schemes are outlawed in all states in the USA. Another way of saying it is that a program is illegal if participants make money from sales of the right to make money on the same kind of sales to others.

In most cases, an additional product is involved. Let's call it "product B". The promoters say, "Our program is perfectly legal because when you join, you get product B." That ruse is so common that it seems to be accepted as truth by naive opportunity seekers in general. Hence, they are suspicious of gifting programs because they don't have a product.

The authorities might be stupid, but they're not total idiots. All they have to do is look at the advertising. Does it promote the benefits of product B, or does it promote the benefit of making money with the program? The laws normally say that the restriction applies if any part of the purchase price of the product pays for the right to take part in the program. If a person is required to buy the product in order to take part in the sales program, then some part of the purchase payment does indeed pay for the right to be a sales participant and therefore it is illegal for participants to make money from those sales. (That's the strict interpretation. Enforcement varies widely. This is not legal advice.)

A person joins a well constructed cash gifting program by paying a fee to the administrator. Program members do not make money from the fee people pay to become a member. A well constructed cash gifting program has no more than two tiers, which means it cannot be a pyramid scheme or a multilevel marketing program. Furthermore, there is no need to include any deceptive or misleading claims in the program's advertising.

If those things are done in compliance with the law, the only thing left that could be illegal is the giving of the cash gifts. The act of giving a gift is perfectly legal. But someone might claim that giving within the bounds of a gifting program isn't real giving. They might claim that the giver's motives aren't what they should be. They might claim that the program really fits the law's definition of an illegal scheme.

In the final analysis, whether or not someone considers a particular gifting program to be legal depends on interpretation of laws (mostly state laws) and speculation about the contents of the minds of program members.

The laws against chain schemes in one way resemble suspects in the "war on terror": If you torture them enough, you can get them to say anything. I've seen chain scheme laws interpreted by district attorneys in ways that would make any money-making program of any kind illegal. Leaving aside tortured interpretations of ambiguous laws, I haven't seen a single good reason to judge cash gifting programs to be less legal by nature than any other membership type of money-making program. (Note: this is not legal advice.)

Is the giving in a gifting program legitimate giving?
Some people say that a cash gifting program is really a sham because "it's not about giving at all. It's just a vehicle for getting money from new people into the hands of existing members."

Cash gifting programs promote the idea that they are a private club in which the people who take part are members. A good cash gifting program has the giver send the cash gift with a signed form which says that the money really is a gift, that no right of ownership is retained by the giver, and that there is no expectation of receiving something in return. The program also has a policy statement that describes member activity as the exchange of freely given gifts. In addition, the program administrator provides promotional material that describes the program's advantages over competing programs without directly saying that the purpose of taking part is to make money.

That's the bare bones setup that members have to work with, and they can make of it what they choose. For many, all they know to do is let the gifting program be merely an exercise in money transferring. But someone with that attitude misses the real potential and significance of cash gifting. It would be like thinking of Christmas as merely a gift transfer scheme that boosts retail sales. That attitude ignores the spiritual dimension.

The act of giving a gift affects what happens to a person. A substantial cash gift is an expression of one's belief and trust in the abundance of the universe and the unlimited good fortune that flows to a person who is open to it. Giving a cash gift can open the way to abundance and blessings worth hundreds of times the amount of money given.

There are religious channels on cable and satellite television with daily shows that consist entirely of talk about the blessings and good fortune you are likely to experience after sending them a gift of a thousand dollars. They say that giving them a thousand-dollar gift is like planting a seed that returns a harvest of as much as a thousand times what was planted. You can apply the same idea to a cash gifting program if you choose to. In other words, you can teach your own group in a cash gifting program to look upon the gifting activity in a way that imbues it with added value and significance.

Are cash gifts from a gifting program taxable income?
Gifts received are not taxable income. But if there is a way for tax authorities to interpret the law and the circumstances in a way that brings them money, that is the way they will interpret it. If you receive money that appears to result from activity that is something like a business enterprise, then the money automatically is business revenue as far as they are concerned. You are required to pay income tax and possibly self employment tax on business income, which essentially is business revenue minus the related business costs and expenses. (Note: I am not a tax attorney or CPA, and that is not legal advice.)

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P.S. I do not promote or review any cash gifting programs or any other money-making programs except for my own Cash Flow System.