wealthThe increasing popularity of legal defense funds recently has brought up a lot of interesting questions. One of the questions asked is, is this legal and does anyone have to pay any taxes?

As it turns out, the answer is, yes it is legal and  NO tax payment is required, unless the gift from any one individual is more than $13,000.00. This is the ceiling amount that is allowed to be given under the IRS tax code before there is a requirement to pay taxes on it.

There is no tax liability for the GROSS amount of the gifts received even if that amount were to exceed $500,000.00

http://www.irs.gov/pub/irs-pdf/p950.pdf

The funny thing is, that it is the GIVER of the gift that pays the tax and not the person who is on the receiving end of the gift.

In the case of George Zimmerman the amount that went into the defense fund was high enough to get him AND his wife in hot water for not disclosing the amount of the fund to the court as part of their asset statement in regards to Mr Zimmerman’s bail.

Also, since the defense fund is NOT a not for profit charity, there is NO requirement to account for how the money is spent.

If the person at the center of the defense fund happens to go to Vegas to visit a generous donor who happens to be a stand up Comic at a high priced Hotel, there is not a damn thing anyone can do about it. The funds become the property of the trustee to spend as they see fit.

For example there is this disclaimer in the case of an accused hacker who claims he is about to be indicted for alleged crimes after the FBI raided his residence:

“Donations to this legal defense fund are not tax deductible and will become the sole property of, and be used at the sole discretion of, The Law Office of Jason Flores-Williams, Esq.”

In street speak, it means the law firm can spend the money any way they damn well please.

These two cases are only two examples of this trend for starting these funds. There was a recent civil lawsuit filed in the state of Ohio regarding a fairly well known Gang Rape case and a blogger who was alleged to have falsely accused a teenager of being the ring leader of the rape.

The expenses for the plaintiff’s family soared and were mostly eaten up by efforts to locate the defendant who was unable to be located by a process server in order to compel her to appear in court.

A legal defense fund was soon set up, not for the plaintiff but for the DEFENDANT. An unknown amount of money was raised on behalf of the defendant forcing the plaintiff to settle for an apology from the blogger and the opportunity to make a statement regarding his side of the story.

As far as anyone knows there was never a disclosure as to exactly how much was raised or whatever became of the funds.

This brings up the ethics behind these type of funds and if there should be some regulations created to force those running these things to account for where the funds go.

There seems to be little regulation in place nor any requirements for disclosure in place to control these things.

This creates a situation rife for abuse.

Stay tuned

MURT

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